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The silent green revolution in procurement departments 

Dec 06, 2023

Over the past couple of years, a quiet revolution unfolded in procurement departments worldwide. 

Corporate environmental responsibility has galvanized solar and wind power beyond simple, clean energy solutions; they now stand as powerful statements of a company’s dedication to Earth’s future. In the center of this stands corporate power purchasing agreements (CPPAs) 

Once the domain of pioneering “thought leader” companies, CPPAs have caught the attention of industries wide and far, yet many are still hesitating at the brink of decision. 

However, they must step forward. 

With competition already reaping the benefits, the imperative to act has never been more evident. 

Until now, certificates guaranteeing the origin (GoU) of green electricity have played a commendable role in promoting green business — not withstanding from troubling cases of double counting the green electricity in certain markets. GoU’s offer a verifiable means for companies to claim their use of renewable energy.  

But as the climate crisis looms, the question stands — is it enough? 

The answer lies in not just consuming green but actively contributing to the creation of green energy, and this is where the notion of ‘additionality’ in renewable energy becomes crucial. 

Additionality refers to directly adding new renewable capacity to the national grid – not just tapping into the existing supply. It means ensuring that every dollar spent on electricity helps to fund the creation of new solar arrays and wind farms. And how can a business achieve this? By investing in CPPAs. 

These agreements go beyond mere purchase; they are investments in constructing new renewable facilities, giving businesses the power to catalyze the green transition. 

The concept of additionality may seem vague, given the absence of universally agreed metrics. Yet, its impact is tangible. A commitment to a CPPA might be the catalyst that moves a renewable project from blueprint to reality or significantly accelerates its timeline. That is additionality in its purest form – a direct and measurable contribution to the expansion of green energy. 

Of course, not all companies can produce on-site renewable energy, which is why CPPAs are great examples of inclusivity, enabling any business, regardless of its capabilities, to partake in the green movement. 

It’s essential to address the elephant in the room — the timing of project development and PPA availability. Developing and operationalizing renewable projects is a marathon, not a sprint, occasionally creating a mismatch between the supply and demand for PPAs. 

However, streamlined permitting processes, policy support, and financing can help bridge this gap, ensuring that businesses’ demand for green energy is met with timely supply. 

A pertinent factor in the PPA equation is creditworthiness, given that PPA contracts typically extend over a decade. These long-term agreements necessitate substantial guarantees from buyers, assuring their continued purchasing power and financial stability throughout the term. 

Such requirements can pose significant challenges, especially for smaller players needing help with financial commitments. However, innovative solutions are emerging. 

France has taken a proactive step by introducing a state-backed guarantee for buyers. This intervention eases the financial burden on companies, bolstering their ability to commit to PPAs and, by extension, to the green transition. 

The French model paves the way for an enabling framework that other nations could emulate to stimulate their PPA markets — a testament to the power of policy in accelerating the path to sustainability. 

PPAs serve as a strategic tool for companies beyond the high-energy sector, offering a means to leverage procurement for environmental impact. Even businesses with modest energy needs can advance the green transition through PPAs. 

This approach not only helps secure stable energy prices, irrespective of consumption levels, but also showcases a firm’s dedication to sustainable practices, fulfilling ESG commitments, and enhancing its brand in a competitive market. 

Decarbonization remains a non-negotiable target on the global agenda, further emphasizing the role of PPAs. The emergence of virtual PPAs has expanded the horizon, allowing cross-regional green investments and diversifying the tools available for companies to make an environmental impact. 

PPAs are not just a means to an end but the foundation of a new era of corporate responsibility – one where each kilowatt-hour of electricity represents a step towards a sustainable future. The call to action is simple: invest in CPPAs and join the vanguard of businesses that don’t just brandish sustainability as a badge but weave it into the very fabric of their operations. 

As the revolution moves forward, can you afford to stand still? 

About the author: Gregor McDonald is Head of Trading & PPA at European Energy, a renewable energy developer that develops, finances, constructs, and operates wind and solar farms as well as large-scale PtX plants. The company is active in 28 countries, and at the beginning of 2023 owned more than 1 GW of operational renewable energy projects.