How to build a low-carbon energy procurement strategy

Key elements that anyone buying energy for their business may want to map out as part of the procurement strategy include current consumption, setting reduction targets, and integrating renewables or flexible solutions into purchasing frameworks. 

A good procurement strategy will also factor in Scope 2 emissions and the procurement pathways needed to help achieve the associated targets to remain compliant. It should also highlight data and tracking tools for ongoing performance and how this data might affect future production. Supplier integration should also be considered: it’s essential to provide a framework for selecting suppliers and instruments.

Why low-carbon procurement matters now

As net-zero commitments become even more ambitious and a large carbon-reduction target looms in 2050, investor expectations have risen sharply. As a result, investors and lenders want to know how businesses are reducing carbon emissions. They might wish for energy producers to provide regulatory disclosures, such as SECR (Streamlined Energy and Carbon Reporting) in the UK and CSRD (Corporate Sustainability Reporting Directive), a broader framework for reporting Environmental, Social and Governance (ESG) goals. The price of renewable energy can fluctuate depending on factors such as supply and demand, geopolitical changes, and power outages, and transparency into how these factors might affect energy procurement underscores the growing link between sustainability and energy spend.

Mapping your energy footprint and emissions

It’s essential to identify optimal conditions for renewable energy generation given the volatility of its output. The first consideration is the site. Factors such as solar irradiance and wind speed will determine whether it is suitable for generating the expected energy levels. Another consideration is loads. How much demand will there be for energy, and does this align with the supply availability?

It’s also crucial to factor in the effect of Scope 2 emissions on procurement, which can be calculated in two different ways. Location-based Scope 2 accounting shows where electricity is consumed and the average intensity of consumption, whereas market-based Scope 2 accounting focuses more on emissions from contracts and attributes.

Choosing the right procurement mechanisms

A good procurement strategy starts with good procurement methods, and there are various options for renewable energy. Green tariffs provide energy plans that claim to be from renewable sources, whereas contracts and verification documents, such as Power Purchase Agreements (PPAs), can lock in renewable energy at a fixed price for a set period, and certificates, such as Guarantees of Origin (GOs), confirm that an energy source is 100% renewable. 

Blended portfolio approaches allow energy procurers to reduce risk by spreading it across different types of low-carbon solutions with varying requirements and outputs, for example, solar and hydropower.  Varying the length of a contract, such as a PPA, can also lower risk: a more extended contract duration reduces the risk of energy price hikes, as prices are set, but a shorter one allows flexibility to benefit from price drops if they occur.

Integrating risk, cost, and carbon

Balancing price volatility and emission intensity:

Moving to renewable energy rather than a fossil fuel alternative can reduce the impact of fossil fuel price spikes, but it requires balancing technological integration by making more renewable sources available, taking advantage of market mechanisms such as carbon pricing, and adhering to specific low-carbon policy strategies.

Modelling avoided emissions vs. avoided cost:

While the price of renewable energy does drop over the lifetime of a project, there are significant start-up costs, for example, infrastructure and technology. Therefore, the benefits of avoiding emissions through a low-carbon option must outweigh the associated costs of investing in that energy source. 

Role of analytics and dashboards:

The more data we capture, the more it needs to be made sense of. Analytics and dashboards can help by streamlining and analysing data collected from plants via smart meters and sensors, identifying patterns, and predicting when prices may change and procurement may be affected. This can help to optimise production and grid stability.

Setting targets and tracking performance

Low-carbon energy procurement must be continuously monitored and measured to ensure the best investments are made for the most significant sustainability impact. This could take the form of sustainability KPIs or through the implementation of reporting frameworks. Voluntary reporting, such as the Carbon Disclosure Project (CDP), which focuses primarily on how participants impact the environment via deforestation, water security and climate change, the influential 100 businesses committing to 100% renewable energy, which make up RE100 and the Science Based Targets initiative (SBTi), which provides a framework for companies to help achieve emission reduction targets. The key to these remaining impacts is a regular review cycle and governance of carbon reduction targets. There’s no doubt that low-carbon procurement is both a sustainability imperative and a cost-management opportunity, but it begins with data, integration, and clear objectives.