November 30, 2023 | Procurement Strategy
With sustainability rising on corporate agendas, procurement is positioned to play a pivotal role in transitioning energy consumption to renewable sources.
But beyond signaling green intentions, crafting an optimal renewable energy procurement strategy requires systematic planning.
What should organizations consider when establishing renewable targets?
How should procurement tailor an effective strategy based on business circumstances?
Let’s walk through some of the key steps that procurement teams can take to develop a sound renewable energy sourcing strategy.
At the outset, current energy usage must be measured and understood. Work cross-functionally to collect usage data across facilities, and identify primary types, volumes and costs of energy consumed. Map out existing contracted rates and agreement durations for electricity and natural gas to determine near-term flexibility or commitment. Gaining this baseline visibility into internal energy demand is essential groundwork.
With internal demand profiled, procurement organizations should conduct in-depth market assessments of available renewable options in the regions they operate.
What options for solar, wind, geothermal and biofuel generation exist near key company locations?
How do utility green power solutions like carbon offsets , renewable energy credits (RECs) and green tariff rates compare?
Are sufficient renewable independent power producers (IPPs) operating that provide competitive pricing via power purchase agreements (PPAs) or virtual power purchase agreements (VPPAs) ?
Understanding the local market landscape helps procurement position itself to explore alternatives and make data-driven decisions. Consider leveraging consultants or partners with established expertise navigating deals in the emerging renewable power sector when getting started.
Armed with end-usage data and supply market context, procurement can begin modeling different combinations of renewables adoption paths - whether incremental REC usage, signing PPAs with generators, installing solar panels locally or a hybrid approach.
The right path comes down to variables like budget, risk appetite, green branding goals and region.
For example, retail chains with distributed building footprints might find on-site solar optimal but capital intensive, whereas data center operators located in areas with ample wind farms may prefer PPAs.
Modeling total cost of ownership and scenarios aids strategic decision-making.
While cost economics are crucial, they are not the only determinant. Procurement needs to weigh additional factors when shaping final renewable recommendations:
Securing executive commitment and cross-functional buy-in across real estate, facilities management and finance are vital for embedding renewable procurement long-term. Make the business case clear.
Federal, state and local policies like tax credits can sway decisions by offsetting high capital investments for renewables. Continuously monitor policy updates for new renewable incentives.
Evaluate risks like reliability of renewable generation versus conventional energy or potential community backlash to new solar/wind installations. Develop mitigation contingencies.
Understand wider corporate social responsibility and emissions targets leadership wants to achieve. Ensure your renewable plan aligns clearly with these formalized environmental goals.
Once aligned on the optimal path based on careful consideration of these elements combined with supply market dynamics and end usage patterns, procurement can move forward bringing leadership recommendations to life.
From data gaps to internal misalignments to external supplier relationship challenges, renewable energy transitions do not come without roadblocks. Thus, in additional to external supplier management, procurement should prepare to navigate obstacles such as:
Without detailed historical visibility into energy demand and spend across facilities, procurement struggles to quantify baseline consumption, impeding planning. Incomplete data also impedes modeling total cost of ownership for different renewable scenarios like on-site solar installations or utility green power programs. Installation of improved energy management systems can help address data visibility deficiencies.
Conflicting priorities across internal stakeholder groups can derail renewables planning. Finance may push back on high up-front capital requirements. Real estate favors renewable projects that enhance property values. Facilities management may offer resistance based on reliability concerns. Overcoming misalignments requires education on renewable paths and extensive cross-functional collaboration when developing strategy.
Externally, relationships with utilities and renewable independent power producers can prove more complicated than with traditional energy suppliers. As renewable developers have far different business models, procurement teams need to be adept at supplier relationship management, which may include more stringent vetting and partnerships.
By anticipating challenges around data gaps, internal alignment and external supplier dynamics, procurement leaders can navigate pitfalls through careful change management, strong partnerships and communication.
Renewable transitions don't happen seamlessly without overcoming key hurdles. With strategic leadership, procurement can craft a plan tailored specifically to enterprise needs and regional dynamics - enabling both sustainability goals and value realization.