Recent Trends in the Debate on Coporate Renewable Sourcing

/ ©ECOFYS, A NAVIGANT COMPANY. ALL RIGHTS RESERVED1

THE PRODUCER, THE CONSUMER AND

THE REGULATORY PERSPECTIVE

RECENT TRENDS IN THE

DEBATE ON CORPORATE

RENEWABLES SOURCING

26 OCTOBER 2017


TABLE OF CONTENTS

Introduction (and recap of RES sourcing options)

Recent market developments

Recent regulatory developments

Other pressing issues

Conclusions and outlook

/ ©ECOFYS, A NAVIGANT COMPANY. ALL RIGHTS RESERVED3 / ©2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED33 / ©ECOFYS, A NAVIGANT COMPANY. ALL RIGHTS RESERVED

AT A GLANCE: ECOFYS, A NAVIGANT COMPANY

Global consulting company founded in 1984 with the mission to enable sustainable

energy for everyone – since 2016, Ecofys has been part of Navigant’s global Energy

practice

We have over 600 experts skilled in energy, climate, environment, economy,

communication, law, and psychology – in 2007, 11 of our experts supporting the

Intergovernmental Panel on Climate Change were awarded the Nobel Prize together with

Al Gore

More than 30 years of experience in developing and evaluating policies, sustainability

strategies, and scenarios for companies and sectors provides us with deep knowledge of

markets and consumer behaviour

Our strength lies in our strategic understanding of complex energy and climate transition

issues: Ecofys connects the dots within the triangle between governments, energy

players, and energy-intensive end-users

Ecofys has five offices in four countries: Utrecht, the Netherlands; Cologne & Berlin,

Germany; Brussels, Belgium; London, United Kingdom – as part of Navigant, our experts

are based in more than 20 offices in the US and Canada, Hong Kong, and the Middle

East

Copyri

ght

info

rmation: F

ree icons p

rovid

ed b

y icons8.c

om

as C

C B

Y-N

D 3

.0


RENEWABLE ELECTRICITY SOURCING METHODS

Self-generation

(on-site or near-site)

Power Purchase

Agreements

Guarantees of Origin

(grey electricity offsetting)

Self-generation with

direct self-consumption

(microgrid)

Self-generation with grid

feed-in and extraction

(net-metering)

PPA with real-time

matching of generation

and consumption

PPA with balanced

consumption over time

Bundled green

power product

Redemption of

unbundled GOs

GO

GO


RENEWABLE ELECTRICITY SOURCING METHODS:

WIDE RANGE OF OWNERSHIP AND LOCATION

Location/

Proximity

Ownership

On-siteNear-siteOff-site,

same country

Off-site,

neighbouring

country

Self-owned

Leased

3rd-party owned

(contracted)

3rd-party owned

(retailed)


RENEWABLE ELECTRICITY SOURCING METHODS:

WIDE RANGE OF OWNERSHIP AND LOCATION

Location/

Proximity

Ownership

On-siteNear-siteOff-site,

same country

Off-site,

neighbouring

country

Self-owned

Leased

3rd-party owned

(contracted)

3rd-party owned

(retailed)

Self-

generation

Power

Purchase

Agreements

Guarantees

of Origin


CREDIBILITY CRITERIA

ELIGIBLE TECHNOLOGIES

ADDITIONALITY

MARKET BOUNDARIES

FACILITY AGE

VINTAGE

CLAIMING INSTRUMENT

The credibility of a green energy sourcing option is an indicator for

its quality and accountability, its contribution to the energy

transition, and the buyer’s level of ambition.


CREDIBILITY ASSESSMENT (INDICATIVE)

Microgrid

Net-metering

Real-time PPA

Balanced PPA

Green power product

Unbundled GOs

++ depends ++ ++depends

(++) ++

+ depends ++ +depends

(+) +

+ dependsdepends

(+)

depends

(+)

depends

(+) ++

+ dependsdepends

(+)

depends

(o)

depends

(+) +

+ dependsdepends

(-)

depends

(-)

depends

(o)

depends

(o)

+ dependsdepends

(-)

depends

(-)

depends

(-)

depends

(-)

The credibility of a green

energy sourcing option should be

an indicator for its quality and

accountability, its contribution to

the energy transition, and the

buyer’s level of ambition.

Note that most criteria depend on the particular configuration of the green energy supply and on the country.


PRICE VS. CREDIBILITY (INDICATIVE)

Price

CredibilityThe credibility of a green energy sourcing option should be an indicator for its quality and

accountability, its contribution to the energy transition, and the buyer’s level of ambition.

Self-

generationPower

Purchase

Agreements

Guarantees

of Origin

Microgrid

Net-metering

Balanced

PPA

Real-time

PPA

Unbundled

GOsGreen power

products


WEBINAR ARCHIVE

Introduction to green energy sourcing for

industrial consumers14 September 2017

https://www.youtube.com/watch?v=yKzZfqFKOjM

http://www.leonardo-energy.org/resources/1185/corporate-green-energy-

sourcing-5980337e48524

Speaker: Benjamin Munzel (Ecofys, a Navigant company)

https://www.youtube.com/watch?v=yKzZfqFKOjM

http://www.leonardo-energy.org/resources/1185/corporate-green-energy-sourcing-5980337e48524


TABLE OF CONTENTS




Conclusions



07/2017Google:

10-year PPA with

Eneco, largest PV

plant in Sunport

Delfzijl, to power data

centre in 20 km

distance.

CORPORATE PPAS INCLUDE DIFFERENT SETUPS AND CAN BE

TAILORED TO DIFFERENT OBJECTIVES

10/2016Philips, AkzoNobel,

DSM and Google:

Club PPA with two

cooperatives in

Zeeland on wind park

in Krammer, “cutting

out the middle man.”

They “significantly

contribute to deliver

on the Dutch

renewable energy

target of 14% in 2020.”

05/2017CocaCola:

PPA with EDF and its

5MW PV ground

mounted plant 1.5

miles away from its

factory in in Wakefield,

covering 15% of the

factory’s electricity

demand.

10/2017Microsoft:

15-year PPA with GE, 100

percent of 37 MW

Tullahennel wind farm in

County Kerry, including

agreement with Dublin-

based energy trading

company ElectroRoute

(for energy trading

services).


MARKET FUNDAMENTALS IMPROVE THE BUSINESS CASE FOR

CORPORATE PPAS: AUCTION RESULTS IN EUROPE

0

50

100

150

200

250

2008 2010 2012 2014 2016 2018 2020 2022 2024 2026

Aucti

on r

esult

in E

UR

/MW

h

commissioining date

Auction outcomes for offshore wind in Europe

Source own representation based on Kitzing and Wenndring 2016, Prognos & Fichtner 2017

*

* 2012 real prices corrected for inflation;

including grid connection costs

Disclaimer: Auction results are not adjusted for the length of support


MARKET FUNDAMENTALS IMPROVE THE BUSINESS CASE FOR

CORPORATE PPAS: GLOBAL AUCTION RESULTS

Sourc

e: IE

A 2

017


COST FOR RES-E AND WHOLESALE MARKET PRICES WILL

POTENTIALLY MEET BETWEEN 2018 AND 2024 (GERMANY)

Access to subsidies for

RES-E production

Exemptions from levies,

fees and taxes for self-

consumption

Balancing costs

(forecast deviations)

Available options for

demand response

In addition, business case

depends on

Fees for third parties

(e.g. trading entities)

Match of production

and consumption

patterns (e.g. additional

energy purchase)


THE BUSINESS CASE FOR A CORPORATE RES PPA DEPENDS

ON SEVERAL FACTORS: A SIMPLIFIED OVERVIEW

RES producer

LCOE

Additional costs

for balancing

measures

Contractor premium

Demand

response

Balancing

costs

Consumer

SubsidiesExemptions for

RES self-

consumption

Consumers´

standard

choice

Regular retail

price of grey

electricity

Balancing

costs

LCOE

Revenues

from excess

electricity

production


SEVERAL STRONG RES MARKETS IN EU ARE NOT YET

JOINING THE TREND

4%4%

4%

5%

14%

16%22%

31%

Location of corporate PPAs in EU (Q3 2017) (Source: BNEF)

Other Denmark Finland Ireland

Norway Netherlands Sweden United Kingdom

• Most corporate RES PPAs in

UK and Sweden

• No green corporate PPAs

known in large markets like

Germany, France, Spain, Italy

• Germany: PPAs are allowed,

but GOs are not given out for

installations that receive

subsidies


… for consumers when

• Actual cost of RES decrease below market prices

• Subsidies are paid for RES production

• Additional transaction costs (e.g. balancing requirements, licensing

requirements as trader) are covered by producer or third party

CORPORATE PPAS ARE SPECIFICALLY ATTRACTIVE…

… for RES producers when

• Support scheme implies strong revenue risk (e.g. fixed premium or

quota schemes)

• Pressure on lowering subsidy payments increases (e.g. through

auctions)

• Support schemes are phased out

• Support payments end for an installation and O&M costs are

sensitive to market price risks

While stable and reliable support schemes (incl. predictable revenue streams) are

crucial for cost-effective RES deployment, they reduce the need for corporate PPAs

Where the investment environment is difficult, PPAs can provide the necessary

price risk mitigation.


TABLE OF CONTENTS




Conclusions



UPCOMING REDII WILL IMPACT CORPORATE RES SOURCING

Provision in EC REDII proposal (Art 15)

Member States shall remove administrative barriers to corporate long-term power purchase agreements to

finance renewables and facilitate their uptake.

Which barriers extactly shall MS remove? (e.g. licensing

requirements for offtakers)

Other provisions will influence corporate RES sourcing

options in the EU beyond 2020…

Provisions on

Guarantees of origin

Provisions on self-

consumption

“Clean energy

for all”

proposal by

EC

Positioning in

council and EP

Entry into force

and

implementation

Trialogue

procedure /

adoption of

proposal

2016 2017 2018 / 2019 2021


• Problem of overcompensation

not solved

• Problem of GO oversupply

not solved

• No direct statistical

connection between RES

production and consumption

UPCOMING REDII WILL IMPACT CORPORATE RES SOURCING:

GUARANTEES OF ORIGIN

Current GO regulation (Art.

15, RED I):

[…] guarantee of origin is

issued in response to a

request from a producer of

electricity from renewable

energy sources.

Member States may provide

that no support be granted

to a producer when that

producer receives a

guarantee of origin for the

same production.

EP draft report (Art. 19):

…in the case of new renewable energy

installations no guarantees of origin are issued to

a producer that receives financial support from a

support scheme […] unless double

compensation is avoided (e.g. RES auctions).

All GOs not issued to a RES producers to be

transferred “to the market by auctioning them”

EC proposal (Art 19):

[…] no guarantees of origin are issued to a

producer receives financial support from a

support scheme […]. Member States shall issue

such guarantees of origin and transfer them to the

market by auctioning them. The revenues raised

as a result of the auctioning shall be used to

offset the costs of renewables support.

Alternative proposals

• Include all sources and full disclosure (con:

administrative burden)

• EU Label for non-supported RES plants (not

change in disclosure but label)

How about

overcompensation?

MS have conflicting

practices…

• Problem of GO oversupply

not solved

• Lack of transparency for final

consumer

Current practice is mixed:

some MS issue GO for

supported plants, some

don‘t.


UPCOMING REDII WILL IMPACT CORPORATE RES SOURCING:

SELF-CONSUMPTION

No explicit self-consumption

regulation in RED I EP draft report (Art. 21): Member States shall

ensure that renewable self-consumers:

• are entitled to consume their self-generated

renewable electricity without it being subject

to any charge, fee or tax;

• MS shall carry out an assessment of existing

barriers and potential of development of self-

consumption […] to put in place an enabling

framework […]

EC proposal (Art 21): Member States shall ensure

that renewable self-consumers:

• are entitled to carry out self-consumption […]

without being subject to disproportionate

procedures and charges that are not cost-

reflective;

• maintain their rights as consumers and are not

considered as energy suppliers.

How about the

benefits of self-

consumption?

Removal of some barriers in

some MS… but sufficiently?

Current practice is mixed.

Some MS support self-

consumption…

• … for households, some

for industry.

• … for conventional

technologies, CHP,

and/or RES.

• … through explicit

payments or through

exemptions from levies,

fees and taxes.

• … not at all.

Alternative proposals:

• Actively remove barriers

• Allow MS to design exemptions from levies,

fees and taxes according to their context (while

avoiding disproportionate procedures and

excessive charges)

Self-consumption has different

effects in each MS (e.g.

distribution of costs for levies

and fees)…


TABLE OF CONTENTS




Conclusions

Introduction (and recap)


OTHER ELEMENTS NECESSARY FOR THE MARKET TO

FURTHER DEVELOP

Knowledge

dissemination

Exchange of

preferences

Match making Standardization

On the

advantages of

RES sourcing

On the available

options

Balance between

wide range of

options (= tailor

made) and

reduced

complexity

Producers want

revenue

stabilization

Consumers want

low prices,

statistical clarity,

secure supply,

and low

transaction costs

Matching specific

needs of

consumers with

project pipeline

and market

contexts

Market is just

starting, no

platforms

available yet

Standardized

approach to

identify options

for specific

consumer

interests

Standardizing

PPA contracts


3-PHASE APPROACH TO IMPLEMENT GREEN ENERGY

SOURCING

Phase I:

Analysis

Phase II:

Strategy

Phase III:

Execution

Step 1: Analyse energy

consumption and future

demand.

Step 2: Analyse potential for

flexibility (e.g. load

management).

Step 1: Develop a corporate

energy strategy in line with

overall CSR objectives.

Step 2: Evaluate options for

green energy supply (potential

costs, risks, benefits).

Step 3: Draft RFPs for green

energy supply under defined

conditions.

Step 1: Market RFPs and

evaluate bids from green

energy suppliers (long list).

Step 2: Perform legal, financial

and technical assessment of

potential suppliers (short list).

Step 3: Analyse potential for

on-site or near-site self-

generation.


TABLE OF CONTENTS

Conclusions






CONCLUSIONS

• Current trends show: look at PPA options now

- Increasing RES sourcing activities

- Improving case for corporate RES sourcing (decreasing RES costs, increasing wholesale

market prices expected, cost pressure in RES support schemes)

• Regulatory framework for period after 2020 not yet clear but heavily impacting the

Corporate RES sourcing market

- General provisions to remove barriers for corporate PPAs

- Provision on Guarantees of Origin

- Provision on self-consumption

• Important to implement RES sourcing solutions that are

- Cost-effective

- Feasible

- Robust against external scrutiny (regarding quality criteria)

- Well-informed on potentially changing regulatory environments


MALTE GEPHARTManaging Consultant

+49 (0) 30 29 77 35 79 – 22

[email protected]

BENJAMIN MUNZELSenior Consultant

+31 (0)30 662-3023

[email protected]

CORINNA KLESSMANNDirector

+49-30-29773579-21

[email protected]

ROLPH SPAAS Associate Director

+31 (0) 30 6632-3689

[email protected]


ECOFYS NETHERLANDSKanaalweg 15-G

3526 KL Utrecht – The Netherlands

ECOFYS GERMANY (COLOGNE)Am Wassermann 36

50829 Cologne – Germany

ECOFYS GERMANY (BERLIN)Albrechtstraße 10 c

10117 Berlin – Germany

ECOFYS UKWoolgate Exchange – 25 Basinghall Street

London EC2V 5HA – United Kingdom

ECOFYS BELGIUMAvenue Marnix 28

1000 Brussels – Belgium

Find the full set of offices here.

https://www.navigant.com/locations

Environment

Recent Trends in the Debate on Coporate Renewable Sourcing