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RECs: The Acronym to Know When Aligning Renewable Energy Procurement with Strategic Business Objectives

ICT companies all over the world have embarked on a 21st century clean power crusade to match their business goals and sustainability pledges with cost-effective renewable energy. These quests have been to some extent excited by the rush for big data and the so-called “cloud migration”, and consequently the need to keep massive data centres humming sustainably. A growing number of businesses also have their operations more and more spread out across the globe in both developed countries and emerging markets. But while the global renewable energy market is growing in leaps and bounds, options to source renewable energy at a lucrative price are not available everywhere.

This aspiration for renewable power was also shared by the 50+ participants at our recentwebinar, “The Rise of Renewable Energy in the ICT Industry 2016”. Attended by a very diverse audience, the webinar served to further highlight the need to bridge the corporate knowledge gap regarding different renewable energy solutions currently on the market.

The approach to sourcing renewable energy varies at present from one country to another, depending on issues such as geographical location, financial means, as well as industrial and energy structure. Not an easy environment to navigate for companies who might have both national and international footprints! Due to such dispersed geographical presence, varying regulatory limits and complex deal structures in different markets can make it a challenge to reach company-wide price goals and energy targets. And even when renewable energy resources are available, not every place has sufficient electric grid access. Making substantial investments in actual energy facilities might also not be for everyone: renewable energy projects can easily be nine-figure affairs.

In these instances, purchasing renewable energy certificates (also called RECs) is one smart way to source renewable energy in challenging regions: RECs contain and disclose the renewable sources from which the electricity is consumed and are issued for every megawatt-hour (MWh) of electricity produced by a power station. They can be sourced easily in North America and Europe thanks to well-connected national registries. They also represent an important first step for all corporations planning to decrease their GHG emissions as they imply very low risks in terms of capital, counterparties and currency: RECs have low transaction costs compared to other alternatives such as purchase power agreements (PPAs), and their impact on a company’s environmental performance is immediate as they instantly reduce emissions from purchased or acquired electricity (“Scope 2 emissions”).

This reasoning was also supported by the poll results gathered from the participants at our ICT webinar on renewable energy: for many of them, the most important criteria for sourcing RECs are price, reportability and alignment with strategic business objectives. Other criteria typically taken into account by companies would range from the standard of the RECs, the location, the technology and age of the power plants from which the RECs are sourced, the vintage of the RECs, to other social, economic and environmental co-benefits of power plants.

While there are other options to access renewable energy and reach strategic goals – including the previously mentioned PPAs, virtual PPAs or via advisory services – RECs provide a mechanism of flexibility that allows companies to deploy renewable energy strategies globally.

The rise of RECs and other renewable energy solutions on the global agenda reflect the worldwide consensus that there is a pressing need for more renewable energy in order to stop climate change and keep to the goals outline by the Paris Agreement.

Without a doubt, the ICT sector is well above the average in terms of positive contributions to the pursuit of cleaner energy. Another positive take-away from our webinar was that nearly 60% of our participants noted voluntary initiatives, such as the RE100, as key drivers for action. By working towards renewable energy targets, voluntarily or by compliance, companies do not only open the door to new business opportunities, they also address expectations from consumers, authorities and investors. By generating electricity from renewable energy sources, businesses are also able to improve their sustainability rankings in the likes of CDP’s prestigious Carbon Disclosure Leadership Index. RECs for instance contribute towards a better CDP ranking by directly reducing the Scope 2 emissions that must disclosed when reporting to the CDP.

The financial incentive for opting for RECs has already been mentioned, but real-life cases serve to further highlight this reality:

While cloud solutions represent a major growth opportunity for SAP, energy-intensive data centres remain one of the main challenges to tackle, for the market leader in enterprise application software. Opting for GoldPower, premium renewable energy certificates (RECs), the company has started leveraging renewables as a powerful differentiator for attracting and retaining customers, employees and investors. SAP’s investments in RECs and renewable energy have to date spelled out the company’s genuine commitment to sustainable development, not to mention a smaller carbon footprint.

Finally, as mentioned in our webinar, the move to trace the origin of renewable power goes beyond energy solutions in Europe and North America:  the International REC Standard (I-REC) is a new global standard used to document renewable energy consumption. Multinational businesses that invest in I-RECs can for the first time on a regional scale trace the origin of the electricity they use in their operations outside of North America and Europe.

“International companies are demanding electricity from renewable energy sources. With I-REC they have an internationally valid tracking system to document green power consumption in locations where this was previously not possible. I-RECs also increase the speed in which companies can integrate renewables into their energy mix.”  Natalia Gorina, Director Carbon & Renewables, South Pole Group, speaking at the Rise of Renewable Energy in the ICT sector
To conclude, companies are becoming more demanding about how exactly their green power is produced, and the future will see likes of RECs, PPAs (normal or “virtual”) and direct renewable energy investments gain more prominence. For the time being, with more and more companies spreading out operations beyond national borders, RECs can offer a lucrative means to report performance, mitigate business risks and align the wider implementation of renewable energy with strategic business objectives.

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