Andrew Toher, Head of Customer Insights, Enel X UK, looks at the options available to energy managers as the country emerges from lockdown.
According to International Energy Agency data, COVID-19 has caused a “staggering” decline in overall energy demand. Many organisations have been left struggling to make sense of abnormal demand patterns throughout the crisis. Where facilities have been forced to stand idle, demand has plummeted. For some operations, such as distribution centres, demand has actually increased in line with activities.
With the uncertainties surrounding lockdown exit strategies, organisations have little idea when demand will return to normal, or for some, what normal looks like once lockdown is over. The transition back to work will be a gradual process for many, with social distancing continuing to impact operations for some time. Organisations will be under enormous pressure to control their costs, with energy spend in particular coming under the spotlight.
Depressed energy prices present attractive opportunities to lock in energy savings. This has made committing to long-term renewable energy purchasing more difficult when viewed in the context of current conventional power market pricing.
The net-zero opportunity
The UK government recently signalled that it would ‘probably’ not publish the Energy White Paper until the Autumn, and the delay in part was because ‘we need an institutional refresh’ to meet net zero goals. Alongside the growing evidence linking air pollution with the health impact of coronavirus, organisations may come under pressure to accelerate their decarbonisation initiatives. Some governments are already demanding steep emissions cuts from certain sectors in return for bailout packages. On top of this, many local authorities have declared climate emergencies and are looking to accelerate their regional net-zero initiatives.
While the coronavirus continues to spread and challenge our way of life, a bright spot emerged recently when the International Energy Agency (IEA) published data for the first quarter of 2020. It showed a 5% decrease in global CO2 emissions compared with the same quarter in 2019, a figure which could increase to 8% for the entire year. As a result of depressed electricity demand, renewables have claimed a greater share of electricity generation, increasing roughly 3% globally.
Customers look to manage risk and stay on track to meet decarbonisation targets
Unfortunately, there is no one-size-fits-all strategy as major energy users look to navigate their way through the COVID-19 crisis. The best course of action depends on the sector and each customer’s specific situation. Many customers cannot easily delay short-term purchase decisions and while the best approach for each business will depend on their specific circumstances, there are some best practice recommendations that should apply to most organisations.
Buyers are often tasked with decarbonising their energy systems while looking to minimise costs. Attractive prices for short-term energy deals make long-term renewable power purchase agreement (PPA) commitments look relatively expensive today. However, there is nothing to suggest that today’s exceptional short-term price trends will change the long-term outlook for energy prices. A PPA that looked like a good deal a year ago may still be a good deal today. Buyers shouldn’t assume that procurement forecasting models using today’s energy prices will be valid over the medium to long term.
When re-evaluating projected economic benefits of a long-term renewable energy contract, it is important to review those outcomes over different scenarios, which may range from 12-20 years.
Delays in the global supply chain may impact the timeline of renewable projects, which are often dependent on shipping schedules and manual labour. While delays are uncertain, companies may have to adjust to the possibility of new project timelines and plan to cover any gaps in supply contracts by extending or renewing existing contracts to avoid holdover rates. Companies that face project delays may need to find short-term solutions to meet sustainability goals in the interim by purchasing Energy Attribute Certificates such as Guarantees of Origin.
Many large developers have robust procurement teams with access to a portfolio of assets and can help bridge the delay with Energy Attribute Certificates.
Demand for corporate renewable energy is driven by a variety of factors. Corporations are striving to be good corporate citizens and community partners through more sustainable business practices. As an increasing number of employees, investors and consumers are all asking organizations to engage in more sustainable activities, this is resulting in companies embracing climate action.
Because the process of renewable energy procurement can take years from commitment to commercial operation, it’s more important than ever to keep the momentum going – even if an organisation has put the pause on transacting.
Procurement is just one part of an increasingly holistic and complex energy strategy, which typically includes long-term sustainability goals, monetising flexibility and demand-side response, evolving efficiency measures and deploying EV infrastructure to enable e-mobility. With a raft of competing priorities, it is extremely challenging to achieve the right balance.
The new energy transition
We should expect continued turbulence across the energy sector for some time. Combining a detailed understanding of the dynamics of today’s energy landscape with a vision for the long-term horizon will enable organisations to build agility and resilience into their procurement strategies while maintaining a commitment to decarbonisation.
Having access to procurement professionals with extensive expertise in assessing energy contracts will help manage risk and enable some customers to take advantage of the attractive prices in retail markets to meet their energy needs.