Tag Archives: PPA

5 ways of visualising emission reduction pathways

Many of our services involve the development of emission reduction pathways, which greatly enhance climate change action plans. In this blog post, we will show you 5 common ways to visually display such a pathway. Seeing these different illustrations can help you to shape how you would like to present your own organisation’s pathway towards a low carbon future.

Introduction

What are emission reduction pathways?

Emission reduction pathways allow for the easy communication of

  • where your organisation is currently at in terms of greenhouse emissions (or energy consumption)
  • where you can be through the implementation of reduction measures that are feasible and cost-effective over time
  • where you would be in the absence of any measures to reduce emissions

Pathways usually start with your selected baseline year and end at some point in the future, typically at 2030, or when agreed or proposed targets are to be met.

What do emission reduction pathways cover?

Boundary:

Your emissions boundary will typically consider three things:

  • The level of an organisation or region you want to assess in terms of emissions reduction. This could be a single site, an asset class (e.g. community buildings), a Division in an organisation, a whole organisation, a town or community, and up to State and National levels.
  • The emissions and energy sources that you want to evaluate. For example, electricity, natural gas, petrol, diesel, refrigerants, waste, wastewater and so on.
  • The Scopes of emissions you want to include. Typically Scope 2 (electricity) is included, and material Scope 1 emissions (on-site combustion or direct emissions). Selected Scope 3 emissions may also be included, such as upstream emissions associated with energy usage and waste.

Units of measure:

The unit for reductions or savings to be modelled will typically be tonnes of greenhouse gas emissions, or a unit of energy, such as kilowatt-hours or megajoules.

What greenhouse gas reduction measures are considered in abatement pathways?

For most organisations greenhouse gas reduction measures usually relate to six high-level carbon abatement areas as shown in Figure 1 below, being

  • Energy efficiency
  • Management of waste and other Scope 3 emissions sources
  • Sustainable transport
  • Local generation of renewable energy such as rooftop solar PV
  • Grid decarbonisation
  • Buying clean energy and/or carbon offsets

These high-level categories can be further broken down into as many subcategories as relevant within your selected organisation boundary.

Figure 1: 6 categories for carbon reduction opportunities

The need for a graphical representation of emissions pathways

For many people, it is hard to engage with complex data presented in a table or report. In our experience, it is most effective if abatement potential can be shown in a graph. The visual representation of a carbon abatement pathway allows people to better grasp the overall opportunity for abatement, where this will come from, and the timeframes involved.

It also helps organisations to better communicate their plans to their stakeholders, be they internal or external. Simple and well-presented graphics can also help when seeking decisions to budget for and implement cost-effective measures.

5 ways to graphically represent emission reduction pathways

There are many different ways you can display an emissions reduction pathway; some are more suited to specific circumstances than others. The five examples we are using in this blog post are:

  1. Line chart
  2. Waterfall chart
  3. Area chart
  4. Column chart
  5. Marginal Abatement Cost Curve (MACC)

Let’s look at these examples in detail.



Example #1 – line chart

A line chart is a simple but effective way to communicate a ‘Business-as-usual’ or BAU pathway compared with planned or target pathways at a total emissions level for your selected boundary. Such a boundary could be comparing your whole-business projected emissions with and without action to reduce greenhouse gases.

This type of graph is also useful to report on national emissions compared with required pathways to achieve Australia’s Paris commitments, for example.

Figure 2: Example of a line chart

Example #2 – waterfall chart

A waterfall chart focuses on abatement measures. It shows the size of the abatement for each initiative, progressing towards a specific target, such as 100% renewable electricity, for example. It is most useful to highlight the relative impact of different actions, but it does not show the timeline of implementation.

Figure 3: Example of a waterfall chart

Example #3 – area graph

Area graphs show the size of abatement over time and are a great way to visualise your organisation’s potential pathway towards ambitious emissions reduction targets.

They do not explicitly show the cost-effectiveness of measures. However, a useful approach is to include only measures that are cost-effective now and will be in the future, so that decision-makers are clear that they are looking at a viable investment plan over time to lower emissions.

Figure 4: Example of an area chart that shows reduction actions and diminishing emissions

Another option of displaying an area chart is shown in Figure 5. In this area chart, the existing emission sources that reduce over time are not a focus, and instead, the emphasis is on emission reduction actions. You may prefer this version if there is a large number of reduction measures, or if you include fuel switching actions.

Figure 5: Example of an area chart which emphasises emission reduction actions



Example #4 – column graph

A column graph is similar to the area graph but allows for a clearer comparison between specific years compared with the continuous profile of an area graph. In the example column graph below, we are looking at Scope 1 and Scope 2 emissions, as well as abatement in an organisation over a 25-year timeframe covering past and future plans.

In the historical part, for instance, we can see Scope 1 (yellow) and Scope 2 (blue) emissions in the baseline year. The impact of GreenPower® (green) on emissions can be seen in any subsequent year until 2018.

Going forward we can see in any projection year the mix of grid decarbonisation (red), new abatement measures (aqua) including fuel switching and renewables purchasing, as well as residual Scope 1 and 2 emissions.

Figure 6: Example of a column chart

Example #5 – Marginal Abatement Cost (MAC) Curve

MAC curves focus on the financial business case of abatement measures and the size of the abatement. MAC curves are typically expressed in $/t CO2-e (carbon), or in $/MWh (energy), derived from an assessment of the net present value of a series of investment over time to a fixed time in the future.

The two examples below show MAC curves for the same set of investments across an organisation. Figure 6 shows the outcome in 2030, whereas, in Figure 7, it is to 2040 when investments have yielded greater returns.

MAC curves are a good way to clearly see those investments that will yield the best returns and their contribution to your overall emissions reduction goal.

Figure 7: Example of a Marginal Abatement Cost curve with a short time horizon

Figure 8: Example of a Marginal Abatement Cost curve with a longer time horizon

Please note that no one example is superior over another. It depends on your preferences and what information you would like to convey to your stakeholders.

100% Renewables are experts in putting together emission reduction and renewable energy pathways. If you need help with determining your strategy, targets and cost-effective pathways, please contact  Barbara or Patrick.

Feel free to use an excerpt of this blog on your own site, newsletter, blog, etc. Just send us a copy or link and include the following text at the end of the excerpt: “This content is reprinted from 100% Renewables Pty Ltd’s blog.

Shrinking your combined load profile [includes video]

In June, Barbara, our Co-CEO, presented at the Renewable Cities Australia conference at the International Convention Centre in Sydney. The topic of her talk was ‘Reaching ambitious energy efficiency and renewables’.

At the core of her speech was a demonstration of how the combined load profile of a typical metropolitan local council changes after the implementation of energy efficiency and onsite renewable energy.

Please note that a video of the ‘shrinking load profile’ is included at the bottom of this post.

What is a load profile?

A load profile shows how your energy demand changes over a 24-hour period, from meter data that your energy retailer can provide on request or via a web portal linked to your account.

Meter data starts and ends at midnight and is usually in half-hour or 15-minute intervals. The vertical axis shows your energy demand in kilowatts as it changes over this time. The less your energy demand, the lower the curve.

A load profile can also be called ‘interval data’ and is a very useful tool for analysing your energy consumption. For example, a load profile can identify equipment that is running unnecessarily at night or may show you spikes in your energy consumption that hint at inefficient operation of equipment. Changes in your profile from summer to spring or autumn can give you an idea of the energy use needed for cooling in a building.

You use load profiles to help you identify how you can be more energy efficient, and they can also help you to size your solar PV installation.

What is a combined load profile?

A combined load profile adds the demand for all your sites to show you the overall energy demand of your organisation. This information is particularly important when you buy energy via a renewable energy Power Purchase Agreement that is supply-linked.

Building up a combined load profile

In this blog post, we build a combined load profile for a metropolitan local government. Figure 1 shows the combined demand of small sites, like small libraries, amenities blocks, community halls and childcare centres.

Energy demand typically rises sharply in the morning as people start to use these facilities, and it falls as people leave them in the evening. At night there is usually demand for appliances, small servers and emergency and exit lights.

Figure 1: The energy demand of small sites



Now, we are adding the electricity demand for large sites on top of the small sites. Examples for large sites are central administration offices & chambers, depots and aquatic centres. Night demand for depots and offices may be low with good after-hours controls. However, pools are usually heated all the time and can be energy-intensive at night.

Figure 2: The energy demand of large sites

The surprising thing for metropolitan councils is that most of the energy demand happens at night, through streetlighting, which runs from dusk until dawn. Streetlights can consume as much as half of a metropolitan council’s electricity! This creates a combined profile with high demand at night and a big dip in demand during the day.

Figure 3: The energy demand of streetlighting

Lastly, we add parks and sporting fields. Most of the energy demand for sporting fields is lighting and irrigation, so naturally, this demand also occurs from late in the evening (sporting field lights) to early morning (irrigation).

Figure 4: The energy demand of parks, ovals and fields

The impact of onsite energy efficiency and renewable energy measures on the combined demand profile

Now that we have a load profile that aggregates energy demand across all sites, let’s implement onsite abatement measures such as energy efficiency and solar PV.

So that you can see the impact of these measures, we are providing a visual cue to show you where our starting line is, because now we start subtracting.

Figure 5: Implementing onsite measures



Energy efficient lighting for parks and sporting fields

LED lighting replacements and smart controls for parks, ovals and fields can lead to a 40-70% reduction in energy demand. At the same time, you may improve your service provision through better lighting, more activated fields and higher utilisation. The net benefit is shown in Figure 6. A reduction in energy demand brings down the whole load profile from the starting point.

Figure 6: Lighting replacement for parks, ovals and fields

Figure 7 shows the impact of a bulk upgrade to LED lighting for local roads. LED streetlights are 60-80% more energy efficient than older technologies such as Compact Fluorescents or Mercury Vapour.

Figure 7: Streetlighting upgrade for local roads

Figure 8 shows the impact of a bulk upgrade to LED lighting for main roads, with similar levels of savings as local roads. Smart controls such as dimming can further increase savings for streetlights.

Figure 8: Streetlighting upgrade for main roads

Implementing energy efficiency improvements to lights, air conditioning, IT systems, appliances, motor systems and building controls at your facilities can achieve at least a 10% reduction, but more might be achievable. It depends on your individual circumstances and what measures you have implemented in the past.

Figure 9: Energy efficiency at Council sites

Installing onsite solar PV

Figure 10 shows the impact of installing onsite solar PV at your sites. You can see the dip in the load profile in the middle of the day, as the solar energy generation reaches its maximum.

Figure 10: Impact on Solar PV

Battery storage will allow further savings in your electricity and peak demand. Figure 11 illustrates how stored solar energy can reduce a building’s peak demand in the afternoon when peak demand charges might apply, thus reducing power bills.

Figure 11: More Solar PV and battery energy storage



What the load profile was and what it could be

So, we have implemented a number of cost-effective efficiency and renewable energy measures, and we can see that demand has reduced significantly. Figure 12 shows what the load profile looked like before implementation of any actions, and what it could be through energy efficiency and onsite solar PV.

Before you think about switching your electricity supply to offsite renewables (e.g. through a Power Purchase Agreement), you should consider the changes behind-the-meter measures like energy efficiency and solar PV can make to your energy demand, and how this can lower the amount of energy you need to buy over time.

Figure 12: Summary of what load profile is and what it could be

Switching your electricity supply to renewables

Figure 13 shows what remains of your original load profile. The next step will be to switch from conventional electricity supply to 100% renewable energy. This can be staged over time or may be possible all in one go.

Figure 13: Offsite opportunities like PPAs

Goals achieved!

In our experience, by implementing onsite energy efficiency and renewable energy measures, you can save 30-40% in electricity demand. By switching your supply to renewables, you can also achieve 100% renewable energy.

Figure 14: Goals Achieved!

You can watch a video of the shrinking load profile here:

Would you like to see how much you could reduce your load profile?

100% Renewables are experts in helping organisations develop their renewable energy strategies and timing actions appropriately. If you need help with analysing your load profile and with developing your renewable energy plan, please contact  Barbara or Patrick.

Feel free to use an excerpt of this blog on your own site, newsletter, blog, etc. Just send us a copy or link and include the following text at the end of the excerpt: “This content is reprinted from 100% Renewables Pty Ltd’s blog.

Science-based targets in a nutshell

Target-setting in line with science

In 2015, close to 200 of the world’s governments committed to prevent dangerous climate change by limiting global warming to well below 2°C in the landmark Paris Agreement. However, total human-caused carbon emissions continue to increase. Under current trajectories, global mean temperatures are projected to grow by 2.2°C to 4.4°C by the end of this century.

Your organisation has a pivotal role in ensuring that the global temperature goals are met, but most existing company targets are not ambitious enough to achieve this.

What are science-based targets?

Science-based targets (SBT) are greenhouse gas emissions reduction targets that are consistent with the level of decarbonisation that is required to keep global temperature increase within 1.5 to 2°C compared to pre-industrial temperature levels.

SBTs are consistent with the long-term goal of reaching net zero emissions in the second half of this century as per the Paris Agreement. SBTs provide a trajectory for companies to reduce their greenhouse gas (GHG) emissions.

The Science-Based Targets initiative (SBTi)

The SBTi is a collaboration between CDP, the United Nations Global Compact (UNGC), World Resources Institute (WRI), and the World Wide Fund for Nature (WWF). The SBTi enables you to demonstrate your climate change leadership by publicly committing to science-based GHG reduction targets.

The overall aim of the initiative is that by 2020 science-based target setting will become standard business practice and corporations will play a major role in ensuring we keep global warming well below a 2°C increase.

Components for science-based target-setting methods

SBT target-setting methods are complex and should be considered in the context of your operations and value chains. Generally, science-based target-setting methods have three components:

  • Carbon budget (defining the overall amount of greenhouse gases that can be emitted to limit warming to 1.5°C and well-below 2°C),
  • An emissions scenario (defining the magnitude and timing of emissions reductions) and,
  • An allocation approach (defining how the carbon budget is allocated to individual companies).

Target setting approaches

There are three science-based target (SBT) setting approaches. As defined by SBTi:

  1. Sector-based (convergence) approach: The global carbon budget is divided by sector, and then emission reductions are allocated to individual companies based on its sector’s budget.
  2. Absolute-based (contraction) approach: The per cent reduction in absolute emissions required by a given scenario is applied to all companies equally.
  3. Economic-based (contraction) approach: A carbon budget is equated to global GDP, and a company’s share of emissions is determined by its gross profit since the sum of all companies’ gross profits worldwide equate to global GDP.

The SBTi recommends that companies screen available methods and choose the method and target that best drives emissions reductions to demonstrate sector leadership. You should not default to the target that is easiest to meet but should use the most ambitious decarbonisation scenarios and methods that lead to the earliest reductions and the least cumulative emissions.

An SBT should cover a minimum of 5 years and a maximum of 15 years from the date the target is publicly announced. Companies are also encouraged to develop long-term targets (e.g. out to 2050).

It is recommended that you express targets in both intensity and absolute terms, to track both real reductions in emissions and efficiency performance.

More information about the ‘absolute-based target setting’ approach

This method requires you to reduce their absolute emissions by the same percentage as required for a given scenario (e.g. globally or for a sector). Companies setting their SBT today would be strongly encouraged to adopt absolute abatement targets well in excess of 4% per year to be aligned with limiting warming to 1.5°C.

As an alternative to setting percentage reduction targets for Scope 2 emissions (electricity consumption), you can set targets for the procurement of renewable energy. Acceptable procurement targets are:

  • 80% of electricity from renewable sources by 2025, and
  • 100% of electricity from renewable sources by 2030.

If you already source electricity at or above these thresholds, you should maintain or increase your share of renewable electricity.



How to commit to and announce a science-based target

The following steps are required to commit to and announce an SBT.

  1. Commit to set a science-based target (internal)
  2. Develop a target (internal)
  3. Submit your target for validation (to SBTi)
  4. Announce the target (public)

Criteria for SBTs

To ensure their rigour and credibility, SBTs should meet a range of criteria.

  • An SBT should cover a minimum of 5 years and a maximum of 15 years from the date the target is publicly announced. You are also encouraged to develop long-term targets (e.g. up to 2050).
  • The boundaries of your SBT should align with those of your carbon inventory.
  • From October 2019 the emissions reductions from Scope 1 and 2 sources should be aligned with a 1.5°C decarbonisation pathway.
  • SBTs should cover at least 95 per cent of your Scope 1 and 2 emissions.
  • You may set targets that combine scopes (e.g., Scope 1+2 or Scope 1+2+3 targets).
  • The Scope 1 and 2 portion of a combined target can include reductions from both scopes or only from one of the scopes. In the latter case, reductions in one scope have to compensate for the other scope.
  • You should use a single, specified Scope 2 accounting approach (“location-based” or “market-based”) for setting and tracking progress toward an SBT.
  • If you have significant Scope 3 emissions (over 40% of total Scope 1, 2 and 3 emissions), you should set a Scope 3 target.
  • Scope 3 targets generally need not be science-based, but should be ambitious, measurable and clearly demonstrate how you are addressing the main sources of value chain GHG emissions in line with current best practice.
  • The Scope 3 target boundary should include the majority of value chain emissions; for example, the top three emissions source categories or two-thirds of total Scope 3 emissions.
  • The nature of a Scope 3 target will vary depending on the emissions source category concerned, the influence you have over your value chain partners and the quality of data available from your partners.
  • You should periodically update your SBTs to reflect significant changes that would otherwise compromise their relevance and consistency.
  • Offsets and avoided emissions do not count toward SBTs. The SBTi requires that you set targets based on emission reductions through direct action within your own boundaries or your value chains. Offsets are only considered to be an option if you want to contribute to finance additional emission reductions beyond your SBT.

Upcoming changes to submission of SBTs

In October 2018, the Intergovernmental Panel on Climate Change (IPCC) released its Special Report on Global Warming of 1.5 °C (SR15), which was the IPCC’s first major update since its Fifth Assessment Report (AR5) released in 2014.

The new report makes a very strong case about the benefits of limiting warming to 1.5°C and highlights the severe risks and impacts of reaching 2°C of warming. It provides new emissions pathways for limiting warming to 1.5°C and well-below 2°C.

Informed by SR15, in April 2019 SBTi released updated target validation criteria, target validation protocols, technical resources and tools to enable you to set targets in line with the level of decarbonisation needed to achieve the Paris Agreement.

This means that as of October 2019, the SBTi will no longer accept targets in line with 2°C. Existing targets in line with 2°C will continue to be valid and will be labelled as 2°C targets on the SBTi website.



Mandatory target recalculation

To ensure consistency with most recent climate science and best practices, targets must be reviewed, and if necessary, recalculated and revalidated, at a minimum every five years. If you have an approved target that requires recalculation, you must follow the most recently applicable criteria at the time of resubmission.

 

100% Renewables are experts in helping organisations develop their carbon reduction and renewable energy targets and pathways. Developing baselines, projecting your emissions and knowing how you can reach identified targets can be complex. If you need help, please contact  Barbara or Patrick.

Feel free to use an excerpt of this blog on your own site, newsletter, blog, etc. Just send us a copy or link and include the following text at the end of the excerpt: “This content is reprinted from 100% Renewables Pty Ltd’s blog.

Challenges with achieving ambitious targets

Challenges with ambitious targets
Challenges with ambitious targets

In part 1 of the blog series, we investigated what the scope of your climate change target could be. In part 2, we looked at the global and national goals you should be aware of. In this blog post, we will shed light on some of the challenges that you may face when setting ambitious goals.

Striking a balance

Setting targets is often about striking a balance between what we know can be achieved with today’s commercially available solutions and what will be available in coming years.

This is why many targets for renewable energy, for example, are 100% by 2030. It is expected that battery storage for solar and renewable energy sourcing for energy supply will be readily available and cost-effective by that time.

Interim targets tend to focus on onsite measures that are known to be cost-effective now, such as energy efficiency and solar panels.

Challenges with achieving ambitious targets

In our experience, both interim and ambitious long-term targets can present challenges for you. Here is a list of some of those challenges.

Ongoing internal support, resources and funding

This is often the most common barrier and challenge; how to gain and sustain the support and funds internally to make efficiency and renewable energy initiatives happen. There are usually limited funds, competing priorities and resources are stretched.

Without internal support at senior level as well as people to develop business cases and implement projects, most programs do not last or succeed.

Strategy tips:

  1. One or a few key staff and managers who want to see continued action on renewables and emissions reduction, and make it a priority on an ongoing basis.
  2. Having clear financing strategies for renewables, efficiency and other emissions reduction measures, including awareness of state and federal incentives such as the Energy Saving Scheme and the Renewable Energy Target, a consideration to fund from Capex or a loan, revolving energy funds or similar.
  3. Alignment of renewable energy and emissions reduction plans with your organisation’s strategy so that this is embedded in your organisational priorities.

Understanding electricity markets and your energy purchasing processes

Energy procurement will most likely deliver the bulk of your organisation’s ambitious renewable energy goals, so without a plan, you may not be able to achieve an ambitious renewable energy goal ahead of the ‘greening’ of the grid.

The ability to meet an ambitious renewable energy goal cost-effectively is heavily influenced by how you source electricity from the market. Whereas in the past, GreenPower® was available, but at a cost premium, many organisations are now able to source energy from renewable energy projects at similar or even lower cost than conventional power.

Strategy tips:

In this rapidly evolving environment, you need to take time to understand how the electricity market and renewables procurement work and develop your energy sourcing strategy accordingly. In particular, investigate the following aspects of energy procurement:

  • The current and future electricity and renewable energy market
  • Contract terms for renewable energy supply
  • Types of contracts for renewable energy purchasing
  • Interest in collaboration or partnering for volume to achieve better pricing are all aspects of energy procurement

Transport and waste

Transport and waste can be sources of large carbon emissions. However, solutions to achieve step-change in energy demand, renewable energy or carbon emissions can be limited, particularly if your organisation is already focusing on emission reduction in these areas.

In our experience, the level of focus on carbon emissions and renewables for these sources is low or lags the focus that is applied to electricity and stationary gas. This often leads to the omission of these sources from targets.

An emerging aspect of this is the potential for electrification of vehicles to change electricity demand and thus increase the amount of renewable electricity that needs to be sourced to meet ambitious targets. Some organisations are beginning to assess their future energy demand with an EV fleet and incorporate this into their long-term forecasts.

Strategy tips:

Consider including transport and waste in future targets if they are not already part of your goal. Make sure that you apply appropriate resources to understand opportunities and future trends.

The emergence of electric vehicles will introduce new challenges for the identification of new opportunities. A good strategy is to forecast what changes will occur and when. This may not be a significant factor for the next 4-5 years but will almost certainly be a more important issue as we approach 2030.

Organisational growth

While you are implementing efficiency and renewables, your energy demand may grow with organisational growth. Your emissions intensity may reduce, but your absolute emissions may still be growing.

Strategy tips:

The greater the level of organisational support and understanding of the nature, scale and timing of opportunities, as well as an understanding of the type and scale of changes that will occur to your assets over time helps to set targets that are realistic and achievable.

You need to take these changes into account so you know what combination of emission reduction options can help you meet your target in the most cost-effective way.

Conclusion

You may find you have only achieved a small part of your goal after a few years, despite the fact you have progressed several onsite solar and energy efficiency projects. Often, building energy efficiency and onsite solar can deliver part of the solution, but each project is individually small.

This is beginning to change with cheaper solar panels making larger-scale systems cost-effective, which in turn has a greater impact on emission reduction and onsite renewable energy generation.

The overall effort towards ambitious goals is likely to include a small number of measures that have individually significant impact (e.g., a renewable energy PPA), plus a large number of small measures that have low impact but are good for the bottom line.

Your strategy to meet ambitious targets should include both these measures.

100% Renewables are experts in helping organisations develop their renewable energy strategies and timing actions appropriately. If you need help with developing a target and action plans that help you meet this target, please contact  Barbara or Patrick.

Feel free to use an excerpt of this blog on your own site, newsletter, blog, etc. Just send us a copy or link and include the following text at the end of the excerpt: “This content is reprinted from 100% Renewables Pty Ltd’s blog.

Buying renewable energy via a Power Purchase Agreement, Part 2, PPA options [includes infographics]

In part one of this series, we introduced buying renewable energy via a Power Purchase Agreement (PPA). In this article – part two, we are looking at the main PPA options.

PPA contract models

A number of PPA models have been developed to enable the purchase of renewables in recent years, including sleeved PPAs, direct or sell-side PPA, and virtual or finance PPAs. Sleeved and direct PPA involve the physical delivery of power, whereas a virtual PPA is just a financial contract.

Sleeved PPA

A sleeved PPA is similar to a regular grid power agreement, except that a portion of the underlying electricity generation is from a specific renewable energy project.

Under this model, you will not have a direct agreement with a renewable energy project developer. Instead, your retailer has a direct agreement with a specific renewable energy project and will sleeve the PPA through your electricity retail agreement.

You will either pay a rate for all power purchased or separate rates for renewably generated electricity and regular grid power.

Your retailer will manage the risk in price fluctuation by obtaining the electricity at a fixed rate from the renewable energy project, or by using a contract for difference.

Sleeved PPA Option, Infographic
Figure 1: Sleeved PPA option, infographic

The duration for the renewable component of the sleeved PPA usually is between ten and 15 years, whereas the duration of the retail agreement (where this is separate) will usually be shorter. The retail agreement is subject to wholesale market pricing, whereas the pricing for the renewable component will reflect the developer’s costs and may be fixed or variable over the term of the PPA.

An example of a sleeved PPAs is the Melbourne Renewable Energy Project.

Direct (sell-side) PPA

A direct PPA involves an agreement between your organisation and a renewable energy project developer. The final price of the delivered energy is a combination of the offtake price of the renewables project plus transmission and distribution costs, as well as billing, reconciliation and risk management costs from your retailer.

Typically, your organisation will buy the renewable electricity at a fixed price over a term of 7, 10 or 15 years. Even though you have a direct agreement with a renewable energy project, you still require a retailer to pass through the terms of the agreement.

Your retail electricity agreement will incorporate the PPA price and most likely include a ‘firming’ clause (performance guarantee) that reduces overall risk for the retailer. The retailer needs to risk-manage any fluctuations in generation against your required amount of electricity.

Direct PPA Option, Infographic
Figure 2: Direct PPA option, infographic

In the past, retailers have agreed to this type of PPA where the volume of renewable energy is only a small portion of your overall electricity load. This is because the retailer is receiving no margin on the small amount of renewable energy but is still making a margin on most of the overall load supplied by regular grid power.

To mitigate against the risk of not finding a willing retailer, one of the PPA project requirements could be to incorporate a retailer offer.

Examples for direct PPAs are Sun Metals, Nectar Farms and Westpork.

LGC-only PPA

An LGC-only PPA is the simplest form of renewables procurement other than purchasing GreenPower®. In an LGC-only PPA, you would only purchase the LGCs and not the electricity from a renewable energy plant. Purchasing LGCS only can be compared to purchasing carbon offsets, except that LGCs are currently more expensive than carbon offsets, and they enable you to claim 100% renewable energy.

With an LGC-only PPA, you are only purchasing the green attributes of renewable energy generation, and you are not concerned with balancing energy demand with the output from a renewable energy generator. There is little risk in matching the number of LGCs purchased to the electricity consumed in any given year.

LGC-only PPA Option, Infographic
Figure 3: LGC-only PPA option, infographic

It also means that there will be little or no change to your retail electricity agreement. However, you may be able to achieve a better price through a bundled PPA and striking a deal with a renewable energy generator for LGCs-only may not be sufficient for a new renewable energy project to get off the ground.

Virtual/finance/synthetic PPA (CFD model)

Virtual PPAs are an effective hedge against rising electricity prices. Like with the Direct PPA, your organisation will have an agreement with a renewable energy project developer. However, the important difference is that no physical electricity is being delivered. A virtual PPA is a financial contract and not a contract for power.

You also you don’t need a retailer for a virtual PPA. Instead, you will enter into a contract for difference (CFD) with the renewable energy developer.

Under the CFD model, you and the developer agree on a strike price, which guarantees a fixed price return for the developer. Contracts for difference were adopted by the Australian Capital Territory and Victorian Governments in their recent renewable energy reverse auctions.

A virtual PPA is a stand-alone financial derivative agreement, which not all organisations can enter into. For instance, due to a Ministerial Order, local governments in NSW cannot directly invest in financial derivatives.

Virtual PPA Option Infographic
Figure 4: Virtual PPA option, infographic

The costs for a virtual PPA are the difference between the strike price and market price (when the strike price is above market price) multiplied by the consumption. This means that if the spot market price is low, you will lose money. On the flip slide, you will benefit financially where the strike price is below market price. In the best case, you have an income opportunity of up to the market cap of $14,200 per megawatt hour, less the strike price value.

The contract for difference approach may suit customers with large energy portfolios and sophisticated energy management teams, or who already have hedging arrangements in place (such as for vehicle fuel) or other forms of derivative contracts.

Organisations that have entered this type of contract are UNSW and UTS.

If you intend on using a virtual PPA to meet a 100% renewable energy target, you will need to undertake an additional PPA for LGCs, which is a separate agreement that could be bundled into the virtual PPA agreement.

Conclusion

There are many different ways to enter into a PPA. If you need help with navigating these different options, please contact Barbara or Patrick.

Feel free to use an excerpt of this blog on your own site, newsletter, blog, etc. Just send us a copy or link and include the following text at the end of the excerpt: “This content is reprinted from 100% Renewables Pty Ltd’s blog.

Buying renewable energy via a Power Purchase Agreement, Part 1, Introduction

An introduction to PPAs
An introduction to PPAs

In a previous blog post, we analysed eight ways to reach 100% renewable electricity, looking at several buy and build options. In last week’s blog post, we investigated various EPC (build) options. In today’s article, we will shed more light on buying renewables via Power Purchase Agreements (PPAs).

In next week’s blog post (Part 2), we will look at the PPA options in greater detail.

What is a Power Purchase Agreement?

A Power Purchase Agreement (PPA) is an agreement between a buyer and a generator to buy renewable energy at an agreed price for an agreed period of time.

In the ‘traditional’ electricity market only large energy retailers and a small handful of very large energy users buy power directly from generators. In the emerging renewable energy market corporates and groups of businesses are seeking to engage with specific renewable energy projects.

In the past few years, we have seen both corporations and local governments entering into long-term Power Purchase Agreements with the aim to reduce electricity costs, manage volatile electricity prices and meet carbon reduction targets.

Under a PPA, you negotiate a rate per megawatt hour that covers all costs including financing, construction and maintenance of a renewable energy asset. No capital investment is required. The renewable energy project developer owns the generation asset, and the performance risk also sits with the developer.

How can you enter into a PPA?

Currently, the corporate PPA market in Australia is still immature. However, the market is evolving rapidly partly due to the increased appetite of consumers for renewable energy and partly due to the cost differential between regular grid power and long-term PPA prices.

With more and more deals being made, there are now numerous models available that can be tailored to fit your situation. For instance, major retailers are examining corporate PPA products that integrate renewable and grid power into a single agreement – supplied from their existing portfolio of utility-scale projects. This will make it easier for you to enter into a PPA. Numerous smaller and emerging retailers are seeking to package and offer renewable energy PPAs from project portfolios, with innovative and more flexible contract terms that aim to deliver value over the contract term.

Before going to market for a PPA, you need to understand your own electricity demand profiles and how this might change over the term of a PPA contract. For instance, as you implement LED lighting, install solar PV, or acquire new assets, your demand profile may change.

It will also help if you are informed about the key risks (market, delivery, firming, intermittency of generation, duration) you want to manage. You should consider engaging advisors who are appropriately qualified to help you get the best deal for your circumstances.

Using the electricity from your PPA to offset your energy consumption

Energy efficiency and onsite solar PV installations are only able to reduce your carbon and energy footprint by a certain percentage. If you are looking to increase your renewables further, you need to look outside the box and consider either building a mid-scale plant yourself or purchasing the output from another renewable energy plant.

An advantage of offsite PPAs is that you can power multiple sites with a single project. Offsite PPAs also overcome problems such as availability of space or renewable resources at your sites’ locations and can offer economies of scale due to their size. It is up to you to choose the percentage of renewables. You could go to market for 20% of your load, or 100% of your load, or start small and progress to 100% renewables over several contracts.

If you are only purchasing the ‘black’ portion of renewable energy generation, so only the power portion (please see next section), you need to be careful about how you frame your renewable energy claim. If you are also purchasing the LGCs from the project and retiring them, then you can claim both the renewable energy as well as the carbon reduction of the renewable energy production.

Bundled versus LGC-only PPAs

Power Purchase Agreements can be undertaken for power only (the ‘black’ portion), the green attributes of the power (the ‘LGCs’), or for both (‘bundled’). Purchasing the electricity will only provide a medium to long-term hedge against volatile electricity prices but does not include the purchase of LGCs. A bundled agreement is likely to achieve a lower price for the LGCs than an LGC-only agreement.

Bundled versus LGC-only PPAs
Bundled versus LGC-only PPAs

Entering into an LGC-only PPA means that no load balancing needs to be undertaken, whereas a bundled agreement means that for ‘sleeved’ and ‘direct’ PPAs, your energy needs will have to be balanced with energy produced from renewable energy generators.

If LGCs are on-sold or used to offset the compliance obligation, a bundled contract is a more comprehensive hedge against future price volatility. A bundled contract hedges against both electricity and LGC pricing.

Should you undertake a PPA?

PPAs are a great way to achieve your carbon reduction and renewable energy goals while providing a hedge against volatile electricity prices. However, to undertake a PPA a change in thinking is required. While, typically, organisations are used to procuring electricity for between one and three years, in the current market a PPA is a long-term commitment, typically around 10 years or more.

To achieve a good price and to make your effort worthwhile, it is advantageous to have a sizeable energy consumption. Unless you are a large energy user, you should consider aggregating your energy demand with other organisations that have similar objectives to you.

The current PPA market has great opportunities for buyers of renewable energy with competition for customers, continuing low-interest rates, a large number of planned new projects and declining technology costs.

Setting up a PPA can be complex and time-consuming, so we recommend working closely with a trusted advisor to determine which option is best for your organisation. Please contact Barbara or Patrick to find out more.

Feel free to use an excerpt of this blog on your own site, newsletter, blog, etc. Just send us a copy or link and include the following text at the end of the excerpt: “This content is reprinted from 100% Renewables Pty Ltd’s blog.

Eight ways to reach 100% renewable electricity [‘Build’ and ‘Buy’ options]

This blog post has been updated in Dec 19 to reflect the re-branding of NCOS to ‘Climate Active’.

As our company name suggests, we help organisations develop pathways that will help them reach 100% renewable energy.

Recently, we advised Eurobodalla Shire Council. The council needed help evaluating proposals for a Power Purchase Agreement, a Public-Private Partnership, and building their own solar farm. The ‘build’ versus ‘buy’ question was also evaluated in work we are currently performing for Inner West Council. This particular council wants to reach both 100% renewable energy and carbon neutrality.

The following infographic shows eight options we evaluated to reach 100% renewable electricity. In this blog post, we present a high-level overview of the ‘build’ and ‘buy’ options and factors that influence the business case.

Eight ways to reach 100% renewable electricity
Figure 1: Eight ways to reach 100% renewable electricity

GreenPower® and buying LGCs through a broker – ‘Buy’ options

The easiest way is to purchase GreenPower®, renewable energy generation accredited by the Australian Government. Buying GreenPower® means that you can ‘offset’ your energy consumption with renewable energy generation that is additional to Australia’s Renewable Energy Target.

Most electricity retailers have their own products sourced from accredited GreenPower® generators, and it is easy to make the switch. GreenPower® is a great option for smaller energy users who may not be able to enter into a Power Purchase Agreement. However, GreenPower® comes at a premium to grid electricity contracts. If you are interested in the combination of GreenPower® and PPAs, it is possible to source GreenPower®-accredited PPAs.

Another option to reach 100% renewable electricity is to purchase Large-Scale Generation Certificates (LGCs). LGCs are the green attributes of large-scale renewable energy production, and by buying and retiring them, you can claim the renewable energy generation, above and beyond Australia’s Renewable Energy Target.

Both GreenPower® and buying LGCs are recognised options for offsetting your electricity consumption under the Climate Active.

Power Purchase Agreement (PPA) – ‘Buy’ options

With Power Purchase Agreements (PPAs), you are contracting for renewable electricity for a minimum number of years, typically from seven years. You agree to pay a certain amount of money per MWh, which covers all costs including financing, construction and maintenance of the renewable energy asset.

If your aim is to become 100% renewable, you also need to purchase the LGCs. A bundled price for both electricity and LGCs can be very cost effective in the current market.

With a PPA, there is no capital investment from your end, and the renewable energy project developer owns the generation asset. The performance risk sits with the developer and you don’t have to worry about technical aspects. Your focus is on the price and supply of the electricity volume and LGCs.

Engineer, Procure, Construct (EPC) – ‘Build’ options

Under an EPC model, your organisation constructs your own renewable energy plant, typically a solar farm. This works if you have suitable land available, or if you can partner with someone who does.

Because the intention is to reach 100% renewable electricity, your solar farm will be connected to the grid, as opposed to a behind-the-meter installation. This is because most onsite solar PV installations can only meet part of your energy demand. A PPA will also form part of the deal.

You invest capital and directly or indirectly manage the construction of your renewable energy asset. Once your solar farm is operating, ownership is transferred to your organisation. It is important to note that you will take on the management and risk of the ongoing solar farm performance. Naturally, you will be more interested in the technical aspects with the ‘Build’ option.

Factors that influence the business case for ‘build’ or ‘buy’

When evaluating different options to reach 100% renewable electricity, there are many factors that need to be considered, in addition to risks and sensitivities. The three main factors that influence the business case for each option are

  1. Market pricing for electricity,
  2. LGC pricing, and
  3. EPC costs
Factors that influence the business case for build or buy
Figure 2: Factors that influence the business case for ‘build’ or ‘buy’

EPC costs are typically expressed in dollars per watt installed. The key components are hardware (including solar panels, mounting and inverters), labour (including civil works, electrical, maintenance and project management), and network connection. These costs have been steadily dropping, especially with respect to hardware components, achieving a connection can be more challenging.

Market pricing for electricity has been volatile in recent times due in part to the retirement of coal-fired power plants. At the same time, a record amount of renewable energy is being installed.

LGC prices have been high in recent years, but with increased supply coming online and the Renewable Energy Target being met, they may have little value after 2020.  You can use LGCs from your build or buy projects to meet your RET obligation, but you also need to retire enough LGCs to cover your energy consumption to claim 100% renewable energy.

Do you want to reach 100% renewable electricity?

As you can see in Figure 1, there are many options to reach 100% renewable electricity. Moreover, this space is evolving rapidly, and there may be additional methods in future. If you need help with evaluating your options, it is best to work with a company who has experience in this field. For further information, please do not hesitate to contact  Barbara or Patrick.

Feel free to use an excerpt of this blog on your own site, newsletter, blog, etc. Just send us a copy or link and include the following text at the end of the excerpt: “This content is reprinted from 100% Renewables Pty Ltd’s blog.”

Financing your solar panels through an onsite power purchase agreement (Solar PPA)

If you are considering the installation of solar PV panels on your premises, an outright purchase will return the greatest financial benefit. However, if you don’t have the capital, one of the financing options available is an onsite solar PPA.

What is a solar PPA and how does it work?

An onsite solar power purchase agreement (PPA) is an agreement between your business and a PPA provider.

Solar PPA infographic
Solar PPA infographic

Figure 1: Onsite solar power purchase agreement (solar PPA)

As per Figure 1 above, there are three parties to consider; your business, the PPA provider and your electricity retailer.

  1. PPA provider is the installer, owner, operator and maintainer of the solar PV on your premises. The PPA provider sells you the electricity generated from solar for an agreed price and duration, typically ten years. At that time there may be options for you to purchase the panels, for the PPA provider to remove them, to extend the agreement, or to renew a PPA agreement with a new system.
  2. Your business (purchaser, or off-taker) is the buyer of electricity from the solar panels on your premises. You buy this electricity for an agreed price, lower than your grid electricity price.
  3. Your electricity retailer continues to supply electricity from the grid, likely to cover most of your demand, and you will continue to receive a bill from them. Your retailer may agree to purchase excess solar energy generation for a feed-in-tariff. As a result, there will be two electricity bills, one from your PPA provider and one from your electricity retailer.

Free Download: Financing Options for Sustainability Projects

What are solar PPA benefits?

There are many advantages to procuring an onsite solar PPA, which include:

  • No upfront cost – the PPA provider bears the costs associated with the purchase and installation of the solar panels.
  • No on-going operation and maintenance costs – the PPA provider is responsible for operation and maintenance of the solar panels.
  • Helps achieve environmental goals – you can use the electricity generated from the solar panels to reduce your carbon emissions or to meet your renewable energy targets.
  • Lower cost of electricity – the solar PPA price should be lower than the cost of grid electricity and may include a process to confirm that this is the case and adjust over time.
  • Monitoring of and guaranteed performance – the PPA provider monitors and may guarantee the performance of the solar panels as part of the agreement.
  • Potential for expansion and battery storage – a PPA could potentially be expanded to include new solar panels and battery storage. Thus, savings from solar could grow over time with no capital outlay and continued cost savings compared with grid power prices.

What are solar PPA risks?

There are also potential risks associated with onsite solar PPAs, which include:

  • More expensive over the life of the agreement – although there is minimal upfront cost for a solar PPA, the total cost over the life of the agreement will be higher than simply purchasing the system at the start.
  • Duration of solar PPA – many PPAs are for 7 to 15 years, which may be longer than your business can commit unless there is long-term certainty of remaining at the same location.
  • Expansion or change – future development adjacent to or on your facility, or to fixtures attached to your roof may alter the performance of or weaken the case for a solar PPA.
  • Costs to make your property solar-ready – You may incur additional costs such as electrical works, cabling and roof repairs when installing solar panels.
  • Quality of panels – you may have less choice in solar panel and inverter technologies under a PPA.

Panel of preferred solar PPA providers

Councils and government agencies can consider using solar PPA providers from the panel of preferred suppliers established by the NSW Government Office of Environment and Heritage (OEH). Support services offered by the NSW OEH include:

  • a prequalified, carefully vetted panel of Solar PPA suppliers (currently six suppliers) and their contact details
  • the Solar PPA Template Contract which can serve as a basis for your agreement
  • ongoing support
  • the Solar Financing Tool
  • the Solar PPA Program brochure – a brief overview of the program

An agreement template can be found by contacting the OEH through their website.

Your own solar installation(s)

It can be difficult to know what solar PV systems to select and how to best finance them. If you would like to speak to a consultancy that is not tied to any product suppliers, please contact Barbara or Patrick. Here are five reasons why you should choose an independent consultancy.

Please note that we have developed a Financing Guide for Sustainability Projects, which you may find useful.

Download Free Financing Options for Sustainability Projects

Feel free to use an excerpt of this blog on your own site, newsletter, blog, etc. Just send us a copy or link and include the following text at the end of the excerpt: “This content is reprinted from 100% Renewables Pty Ltd’s blog.”