December 15, 2020 by eklose
DNV GL calls on suppliers and customers to pay more attention to the dynamic growth of renewable energy. “I would like to say to renewable energy suppliers: make sure your business case is strong for the funds to invest. Customers, both businesses and utilities, need to think carefully about the extent to which they want to go commercially. If you want to enter into an electricity purchase agreement that is beneficial to both parties in the long run, you should at least do your homework better. Driven by their sustainable development goals and the desire to influence the cost of purchasing electricity through long-term contracts and lobbying by influential organizations such as Greenpeace, large companies have deviated from the traditional model of the electricity market, which buys electricity from the wholesale market through a licensed energy supplier or energy supplier (on the basis of a so-called “utility” AAE or a green electricity supply contract). (1) Instead, these buyers want to source directly from renewable energy sources. This is not surprising – due to their high demand for electricity – notable early users of this trend include large technology and Internet companies like Microsoft, Google, Facebook, Apple and Amazon. However, dozens of other well-known names, such as IKEA and Walmart, are following in their footsteps, for example by joining the RE100 initiative. (2) Renewable energy producers are responsible for the fact that long-term AAEs of companies that ensure that all or a substantial portion of the electricity generated is sold can be critical to the financing of their projects. A direct reduction in energy through such agreements is not new in the energy sector. It has long been in practice to enter into direct agreements with large consumers who want long-term price security. In principle, the agreements can cover all types of energy supply, including electricity generated from fossil fuels. But in today`s energy world, businesses are seen as providing electricity and electricity to an end-of-life industrial consumer produced sustainably by a wind turbine, solar power plant, biomass power plant or hydroelectric power plant. According to DNV GL, electricity purchase contracts remain an important means of financing the energy transition worldwide.
Developers facilitate the financing of their solar or wind farm with one or more contracts in their pocket. As subsidies to renewable energy projects decline, these contracts are becoming increasingly important to finance new projects. This type of electricity supply contract also includes the physical supply of green electricity. However, as the facility is not located on the consumer`s site, electricity is delivered to the grid. Electricity is purchased and sold by a distributor that generally offers other services, such as energy offsetting, forecasting or optimizing electricity generation. An example is the agreement between Vattenfall and Facebook in May 2018 for danish and Swedish computing centres, which are powered by wind power from Norway. Interest in electricity purchase contracts is growing in the renewable energy sector. But what is an AAE and what are the possibilities? Hanno Mieth of Vattenfall Trading gives an overview. This delivery is not done by physical support; in the Netherlands, the physical transmission of electricity is carried out by independent grid managers and is a totally separate activity from electricity supply, which is a purely contractual and administrative matter (based on meter data). In the Dutch market, a quantity of electricity is considered to be supplied by a party if the quantity in question is allocated as part of that party`s market management procedures.