Manufacturers: Creating a Solid Business Case for Going Green

Posted at June 8, 2023 » By : » Categories : News » Comments Off on Manufacturers: Creating a Solid Business Case for Going Green

That all changed in Q4 2021, when the energy crisis hit and many businesses saw their energy bills quadruple. Add a military conflict to the mix involving two of the biggest exporters of raw materials, and it wasn’t just countries scrambling for energy security or energy independence, but high energy consuming businesses too. In light of this, the plummeting cost of renewable energy over the past decade and the rising sustainability agenda, there is a solid business case for manufacturers to go green.

So, with a myriad of options available, where should your business be focusing its efforts?

Alfa Energy’s Associate Director for Sustainability and Energy Optimisation, Gianluigi Corbani answers this question in Alfa Energy’s latest blog. Corbani shares his thoughts on where manufacturing businesses should be focusing their efforts when it comes to the rising sustainability agenda and digs into how manufacturers can create a solid business case to go green.

Onsite generation

Whether small wind turbine or roof-mounted solar PV, manufacturers may have considered behind-the-meter generation in the past only for the business case not to stack up, especially once Feed-in Tariffs (FIT) were phased out. Planning permission may also have been a barrier.

However, equipment has improved significantly in efficiency and output, while electricity prices have risen sharply. There are now solar PV options for carpark canopies or weaker roofs. When it comes to wind, there are several new designs that are small, low yield, work in low wind speeds and can be deployed in close proximity.

You can fund the project yourself (late last year when prices reached 80p/p/kWh, project pay-back was as little as 2 years; at current power prices it is more like 5-7 years), borrow capital to do so (granted, a little tricky in light of current interest rates) or opt for a fully-funded model via a corporate Power Purchase Agreement (cPPA), although the latter requires a long-term commitment. More information on Power Purchase Agreement’s can be found in our manufacturing solutions guide.

If your manufacturing operations use a lot of process heat, one option is to store onsite generated power using thermal heat batteries. This will maximise generation in peak summer months when perhaps there is little need for power after 4-5pm. Such systems can store thermal energy using cheap off-peak power at night ready for discharge during the day-time.

Solar developers sometimes offer businesses free desktop feasibility studies, but since they want to sell their hardware solutions, usually incorporate project development costs at a later stage. It is best to get the view of an independent expert, even if just to normalise and compare different analyses.

Offsite PPA

For manufactures that have exhausted land or roof space, and are still drawing a large proportion of power from the grid, the next step is to invest in their very own large-scale wind or solar project via a cPPA.

Such front-of- meter projects can be with existing (the newer the better – something that RE100 recently released guidance on) or new-build projects, the latter providing those all-important ‘additionality’ brownie points.

While PPAs can offer cost efficiencies at scale, they can also involve complex contracting and permitting processes, as well as the need for credit facilities. PPAs are typically long-term engagements, lasting between 10-20 years, and require businesses to provide some form of credit assurance.

Despite these hurdles, there has been a significant increase in the use of PPAs over the last five years, particularly in Europe and the US, as the market for renewable energy matures. Investing in front-of-meter renewable energy projects through PPAs can be a viable option for businesses looking to reduce their carbon footprint and support the transition to a more sustainable energy system.

Decommoditising PPAs

Once a business has completed on- or offsite projects, progressing on their renewable energy journey means attempting to better match consumption profiles to generation, improving proximity (there is a growing desire for local supply), and driving towards greater emissionality (the carbon intensity of energy consumption).

Just as the decommoditisation of electricity meant no longer treating all raw kilowatt-hours the same and paying greater attention to the source of those electrons (such as coal, natural gas, wind or solar), PPAs are increasingly assessed according to where a project is built or when it is operating, as this greatly influences its true net impact on overall grid emissions.

Another wind farm in a region of a country already saturated with, and perhaps even curtailing surplus, wind energy isn’t going to reduce total electricity sector emissions as much as a solar farm built in a region of a country where its output will displace coal-fired electricity.

Furthermore, since the invasion of Ukraine a geopolitical layer has been added. For example, a business with pan-European operations may have to consider if they are helping the security of supply of Poland (where they can have a bigger emissionality impact due to its high use of coal) or in Norway where their business headquarters is.

In respect to a single grid like the UK’s, emissionality is about 24/7 time-matching (see figure 1). Renewable energy sources like solar and wind are inherently intermittent, which can make it challenging to match energy generation with consumption on a real-time basis. Energy contracts are traditionally structured on longer timescales, often annually, which can compound the issue.

However, with advances in digital technologies and real-time energy data analytics, there are businesses that offer solutions to help bridge the gap between renewable energy generation and energy consumption, enabling businesses to achieve more accurate time-matching and reduce their carbon emissions.

Figure 1: Blockchain 24/7 carbon-free energy traceability for corporates

Image: Alfa Energy

Government support helps

When a government underscores credit, it enables many more business to procure via PPAs with less risk and therefore cost. Norway and Spain are examples of jurisdictions that have implemented this form of support.

There are also examples of large, more credit-worthy companies forming an aggregated PPA to support the engagement of those who are less credit-worthy in their supply chain, and this is certainly one way to go.

Preparing for a net zero future

The UK government is committed to a decarbonised grid by 2035 as part of its net zero commitments. Manufacturers have a key role to play and will soon – if not already – be feeling legislative and stakeholder pressure.

Recent UK government policy such as the 2017 Clean Growth Strategy and 2021 Industrial Decarbonisation Strategy are beginning to catalyse action in the sector, combined with investors and consumers demanding greater action from businesses to decarbonise.

If you haven’t already developed your own clean energy strategy with a clear, costed view on what is possible both onsite and off, it’s best to get ahead and be prepared as the legislative landscape will only get more rigorous and clean energy procurement more competitive.

More information on aligning energy use and operations with net zero for manufacturers can be found in our manufacturing solutions guide.

Energy, Sustainability, and Software Solutions for International Manufacturers

Dramatic energy price increases, combined with supply chain bottlenecks, rising business costs and stakeholder demands to decarbonise, all pose huge challenges for international manufacturers operating in highly competitive markets.

With varying pressures on international manufacturers, it is important to have a long-term risk managed energy strategy in place to help create price stability to maximise opportunities for savings, efficiencies, and ultimately carbon reductions. It is equally as important to retool for a new era in which sustainability is seen no longer as a cost, but as a critical value differentiator that is essential to growth.

Alfa Energy welcomes you to our dedicated website for energy, sustainability and software solutions, dedicated to supporting manufacturers. Here, you will find a comprehensive set of global energy, sustainability, and technology solutions to meet your local and/or regional needs.

The original blog post can be found here.

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