How can you improve your energy security?

Wholesale energy prices continue to rise. This, together with the volatility which has been caused by the Russian invasion of Ukraine, means that businesses must take action to improve their own long-term energy security, while at the same time reducing their carbon emissions.

The benefits to doing this are clear, but there is no silver bullet or short-term fix. We have set out below some of the long-term steps which businesses could take to improve their energy security and deliver significant competitive advantages in the future.

Procuring renewable power under a long-term power purchase agreement (PPA)

PPAs are a new way of buying renewable power. There are a variety of different models, but, fundamentally, instead of purchasing electricity from a licensed electricity supplier, businesses contract directly with a renewable generator, without the need to be physically connected.

Procuring power from renewable or low-carbon energy sources, such as wind and solar, will reduce an organisation’s carbon emissions. There are clear environmental and reputational benefits for doing this. But the benefits go beyond sustainability. PPAs are typically long-term agreements with fixed price structures. This acts as a hedge, providing certainty and reducing exposure to fluctuations in the volatile wholesale energy market.

We are currently advising an international manufacturing company on a 130 MW renewable PPA. Already, the likes of Tesco, Unilever, Nestle, Shell, Sainsbury, Nationwide, City of London Corporation, AB InBev, Goldman Sachs and Amazon are using PPAs to their advantage, and others can follow suit.

Developing on-site generation

If it has sufficient roof-space or land available, a business could look at developing its own on-site generation to meet its power demands. This could be funded and delivered (1) directly by the business; or (2) by a third-party energy services company who would be responsible for the design, installation, operation, and maintenance of the generation assets and selling power generated to the business under a long-term PPA.

In addition to providing long-term certainty, a key advantage to this type of PPA structure is price. The generation assets for an on-site solution will be “behind-the-meter” (i.e. downstream of the host customer’s grid connection), meaning that the generator is not exposed to non-commodity grid charges and can offer more competitive pricing than buying electricity from the grid.

Low carbon heat

Recent events have demonstrated the importance of moving away from gas to provide heating. There are long-term strategic steps which businesses could explore to achieve this, including:

• the deployment of heat pump technology at existing properties or their incorporation within the design of new developments and properties;
• developing new, or looking at opportunities to connect to existing, district heating networks;
• developing partnerships to tap into local sources of heat – for example, heat generated from energy from waste plants or ambient heat from effluent water at sewage works.

We are currently advising clients on the development of three district energy networks within the UK. The Climate Change Committee forecasts that the number of customers connected to such networks must increase to 4.3 million customers by 2050 (or 18% of UK heat) if we are to achieve net zero and our energy security cost effectively.

Fleet electrification

Increases in the price of oil and petrol will force many companies to look at the electrification of their transport and distribution activities to secure their long-term energy security. As well as procuring the necessary fleet of vehicles, this will require businesses to invest in effective on-site charging infrastructure, combining the use of renewable generation and battery storage technologies to enhance energy security and optimise supplies. These solutions could be funded and delivered directly by the business. However, the increasing emergence of EV charging infrastructure as a standalone asset class means third party charge point operators are more able to offer capital-free, fully funded solutions using long-term PPA structures for the sale of power.

Flexibility, storage and mini-grids

Taking a more holistic view, businesses could look at the feasibility of developing their own “mini-grid” for their operations or moving to premises which are part of a mini-grid. Mini-grids use a combination of on-site (or near-site) renewable generation, grid power, battery storage and machine-learning technology to provide and optimise supplies of low carbon heat and power within new property developments, matching local generation with local demand and providing balancing services to the wider grid, in turn facilitating the deployment of more renewable sources of power.

Energy efficiency upgrades

Not all businesses will be able to take the sorts of measures set out above. However, taking measures to reduce overall energy consumption could be just as effective. This could range from taking simple steps such as improving insulation, replacing old lightbulbs with LEDs or optimising the use of building management systems, all the way through to investing in deep building retrofits to improve energy performance.

As well as funding these upgrades from their own balance sheet, businesses can deliver these projects by appointing a third party energy services company under established “energy performance contracting” structures. This is attractive to organisations looking to make substantial improvements in energy efficiency - to upgrade facilities, achieve corporate social responsibility and cost saving targets - without distracting them from their core business.