When energy costs represent a significant overhead, it is vital that businesses continue to challenge their procurement strategy, says Ørsted’s Ashley Phillips. He looks at how mission critical sites can improve sustainability and reduce risk…
It is no longer commercially sensible or environmentally responsible to put sustainability strategies on the back burner. The UK’s recent commitment to 2050 net-zero targets mean that carbon reduction and sustainability have been pushed to the top of the agenda for our nation’s businesses.
For data centres in particular, the sustainability challenge is amplified. The evolution in our energy infrastructure has taken place alongside a rapid expansion in our digital infrastructure. As our population and our industries rely more heavily on smart technology and big data, so the energy requirements of handling and storing all that data increases. By 2020, global data centre energy use is predicted to reach about 5% of all consumption, and this will increase to more than 10% by 2050.
While there is, quite rightly, a focus on improving a data centre’s power usage efficiency (PUE) as a key environmental metric, choosing energy from renewable sources is a simple way of further bolstering green credentials. Making sustainable choices is so much more than just ‘doing the right thing’ in 2019 – commercial benefits reach far beyond the bottom line. With this in mind, it is easy to see why risk, resilience and renewables are fast becoming the essential three Rs of energy procurement.
Importance of net zero
Building the environmental case for renewable energy is obvious: the energy choices made by our largest energy consumers have a direct impact on the environment. Even at 2ºC, temperature rises could trigger events such as the thawing of permafrost that releases methane gas, contraction of the snow cover that reflects heat from the sun and reduction of the sea’s ability to absorb carbon. To keep the warming around 1.5ºC, global emissions must reach net zero around 2050.
This is the reason the Committee on Climate Change (CCC) advised UK government to legislate for net zero. Businesses with high energy demand and energy-critical processes will be among those who are most affected by the resulting new legislation aimed at carbon savings. They will also be among those with the greatest role to play in our transition to a better energy future. Businesses that use large amounts of energy have an opportunity ahead as our energy infrastructure continues to evolve.
They can help shape our energy sector by rethinking their own procurement strategy and actively sourcing energy from 100% renewable sources. By committing to low carbon, they will help ensure that our nation achieves a successful transition to a sustainable energy infrastructure which is also affordable and reliable. Businesses that choose this path also stand to differentiate from their competitors.
Energy efficiency measures continue to play an important role in carbon reduction, as do more flexible approaches to energy procurement. Suppliers are working hard to provide compelling options for businesses prioritising sustainability. For Ørsted customers, 100% renewable electricity and greener gas options are available alongside a range of smart flexibility solutions and access to an expert trading desk to help businesses build customised risk management strategies based on their business needs, risk tolerance and internal policies.
However, for those ready to take the next step and secure longer-term renewable supply that also helps them avoid marketplace risk, it may be time to think about more innovative options. This is where corporate power purchase agreements (CPPAs) come in. CPPA demand can support the build out of further renewable energy capacity on the grid. Businesses that choose a CPPA also benefit from long term, stable energy costs and reduced exposure to marketplace risk.
Under a CPPA, a business will receive electricity from a specified renewable energy asset for the longer-term, such as a specific wind farm. The arrangement can support investment for the project and a fixed energy price for the business throughout the contracted period. Businesses should expect to see increased numbers of CPPAs coming to the market in the years ahead. RE100 is a global initiative whereby businesses commit to sourcing 100% of their electricity from renewable sources by a specific date.
The list of businesses committed to the initiative is broad, and the 188 members are seen as pioneers. CPPAs are a procurement method already popular with RE100 members, some of whom aggregate demand, so that their choices have green impact in specific regions or encourage investment in specific technologies. For example, in 2018 four RE100 members – AkzoNobel, Google, Philips and DSM – joined forces to combine their demand and signed joint power purchase agreements to procure renewable electricity through the Dutch Wind Consortium in the Netherlands.
Data centre giant Iron Mountain is another RE100 member with its sights set on powering all operations with renewable energy. The company has pledged to follow a rigorous standard for green power purchasing with ambitious milestones on the way to a complete transition by 2050. Iron Mountain has already utilised PPAs as part of its strategic approach to renewables purchasing and last year signed an agreement to source 145MW of new wind power from a project in Kansas.
The Climate Group uses Iron Giant as a shining example of how renewables are a ‘win-win for both business and the climate’, highlighting how the PPA not only helps the business decarbonise its own operations but also supports local economic growth and brings more renewable power onto the Kansas grid. It is an example which could (and should) be replicated here in the UK.
Challenging your energy procurement strategy
Mission critical sites are often forced to have backup generation onsite to manage downtime risks, but finding environmentally friendly options can be a real challenge. This puts greater emphasis on decarbonising core energy supply – and in the current climate, market forces make this increasingly possible.
When energy costs represent a significant overhead, it is vital that businesses continue to challenge their procurement strategy, ensuring they are taking advantage of the expertise of trading specialists, as well as remaining up-to-date with the options available to them in a quickly evolving market.
Creating a risk management strategy that is attuned to your business’ appetite for price risk – as well as any potential for a changing demand profile – remains crucial if you are to effectively balance budgets with security. But options like CPPAs are changing the market and it is vital that large consumers consider the long-term benefits of price security as part of their overall procurement plan.