In a recent blog post, we discussed the best ways for businesses to support renewable energy in New Zealand (NZ). Products like sustainable biomass, biogas and green hydrogen aren’t readily available and, in most use cases, they’re infeasible. So, for most businesses, the climate-friendly way to back renewable energy is via electricity.
How businesses procure their electricity can have a major impact on the growth of renewables1. The IEA estimated that, excluding China, corporates will drive ~35% of global renewable additions in 2023-24, with the rest largely driven by government incentives2. Currently, NZ doesn’t have government incentives so the procurement decisions of businesses - that consume ~65% of NZ’s electricity - are critical to our transition away from fossil fuels.
In this post, we’ll delve into the main renewable electricity procurement options for NZ businesses and provide some real-life examples. The main options are:
In our RECs explored post, we note that RECs are a type of Energy Attribute Certificate (EAC) that track and verify the ownership of renewable energy attributes. In the case of on-site PPAs and corporate PPAs, EACs should be bundled with these contracts. EACs that are purchased with their associated physical electricity are called ‘bundled’. EACs that have been separated from the physical electricity are called ‘unbundled’.
On-site generation (also called ‘behind-the-meter’ generation or self-generation) is where generation is installed on the same site (or nearby) as a business. In most cases, rooftop solar is used due to ease of installation and favourable economics.
On-site generation can be owned directly by the business or a third party, such as a retailer. If owned by a third party, you’ll need to enter into a long-term PPA (e.g. 10-15 years) to purchase the electricity and associated RECs, as shown below.
On-site generation/PPA should be the first option considered by businesses, particularly if there is potential for rooftop solar.
Example: Foodstuffs’ rooftop solar at Māngere.
A corporate PPA is a product where a business directly buys electricity from an offsite generation project, such as a new solar or wind farm. Corporate PPAs are typically long-term (e.g. 5-15 years), fixed price agreements used to help finance a project.
In NZ, corporate PPAs usually take the form of a virtual PPA (Contract for Differences or CfD) and they are typically ‘sleeved’ into electricity supply agreements. This means a business has a direct PPA with a generator, but receives the PPA electricity and associated RECs via their retailer, and continues to pay for all its electricity on a single monthly bill.
Corporate PPAs are best suited to medium or large electricity users where on-site generation isn’t suitable or can’t meet a business’s full energy needs.
Example: Rose Family Estate’s corporate PPA with Energy Marlborough.
In this option, a business buys its electricity from a retailer, and the supply agreement supports renewable electricity and/or emissions reductions. In NZ, green tariffs typically feature an indirect PPA and/or use unbundled RECs (or sometimes carbon offsets3).
Indirect PPAs are where a retailer enters into a PPA agreement with an off-site renewables project on a business’s behalf. Like corporate PPAs, they are usually long-term arrangements (e.g. 5-15 years).
Indirect PPAs are typically sleeved into a supply agreement and may or may not have a ‘back-to-back’ arrangement. In such an arrangement, the business enters into a PPA with the retailer that’s largely on the same terms as the indirect PPA
Indirect PPAs are best suited to medium-sized electricity users who prefer to engage with a retailer (or generator-retailer) only.
Example: Lodestone’s supply agreement with Inghams
In this option, a business can demonstrate support for renewable electricity by buying RECs that have been separated from their associated physical electricity. Typically, businesses buy 1 unbundled REC for every 1 MWh of electricity consumed.
Unbundled RECs are best suited to smaller-sized electricity users who can’t access, or don’t have the resources to enter into, corporate PPAs or indirect PPAs.
Leaders in renewables procurement, such as Google, favour PPAs with not-yet-constructed projects, bundled with time-based EACs (or T-EACs). T-EACs ensure granular (e.g. hourly or half-hourly) matching of renewable electricity, tracking efforts to accelerate decarbonisation throughout the day and achieve 24/7 clean energy targets.
In international markets, multi-buyer PPAs are emerging. These are PPAs between multiple businesses and a generation project, which can enable smaller businesses to participate in PPAs.
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In a future post, we’ll delve into the pros and cons of each procurement option, and their emissions impact in the context of NZ’s highly renewable electricity market. It is generally recognised that on-site generation and PPAs have the highest impact6, reflected in their higher complexity, risk and longer-term commitment.