Chapter 4

Reduce

  1. Introduction
  2. Step 1: Understand decarbonization approaches from a macro perspective
  3. Step 2: Explore abatement levers from a company perspective
  4. Step 3: Build your decarbonization roadmap
  5. Step 4: Drive implementation through critical enablers
  6. Learn more
    1. Selected examples of supply chain decarbonization initiatives
    2. Procure renewables: discover available technologies and procurement approaches
BCG
Explained byBCG

Procure renewables: discover available technologies and procurement approaches

Technologies

Renewable electricity can come from a variety of resources, including:

  • Solar PV: Converts sunlight directly into electricity using solar photovoltaic (PV) cells

  • Wind (onshore and offshore): Uses the movement of air to drive turbines and generate electricity

  • Hydropower: Uses the movement of water to drive turbines and generate electricity

  • Geothermal: Leverages the heat stored beneath the earth’s surface, moves fluids, and drives turbines to generate electricity

Some of these sources of electricity are dependent on the availability of a natural resource, such as sunlight or wind. To that extent, these renewable electricity technologies are not inherently dispatchable (an industry term that implies that the resource can be turned on and be available at will, as needed). One way for these technologies to become more dispatchable would be via the usage of energy storage technologies (e.g., batteries, pumped storage hydropower, conversion to another fuel such as hydrogen). Additionally, there are other ways to incorporate a larger percentage of renewables into the power grid including, ensuring demand-side efficiency and flexibility, and expanding the regional size of the effective power grid to bring a greater diversity of type and availability of natural resources into the fold.

For a cost comparison example of some of the key renewable electricity sources, please see Figure 22 from Lazard (2023), which publishes Levelized Cost of Energy (LCOEs) (US-specific) annually. LCOE is a means of comparing the effective cost of energy sources over their lifetime, per unit of generated energy (e.g., $/kilowatt-hour). It demonstrates that renewable electricity from onshore and offshore wind, and utility-scale solar, can be very cost-competitive with conventional power coming from natural gas, nuclear and coal.

Figure 21: Lazard’s Levelized Cost of Energy Analysis—Version 16.0.

Beyond cost, renewable electricity technologies can be compared based on several factors, as captured in Figure 22 below.

Figure 22: Pros, cons and environmental risks of renewable energy sources. Source: US Department of Energy; National Renewable Energy Laboratory; Desktop research; BCG analysis.

Procurement of renewables

The primary ways to procure renewable electricity are described below.

  • Negotiate with current utility provider

    • Payment of a monthly per-kWh "upgrade" fee, also known as a “green tariff,” to convert from standard energy offering to renewable electricity

  • Unbundled EAC purchase (or RECs)

    • Energy Attribute Credit (EAC) purchases are made separately from any energy/electricity procurement, and can be used on top of any portfolio of sources; often called Renewable Energy Credits (RECs) in the US market.

  • Physical Power Purchase Agreement (PPA)

    • Purchase of renewable energy and RECs from a specific project located on-site or on local grid

    • Buyer takes legal ownership of power and is responsible to use/sell energy produced or is able to; option to take ownership of RECs

  • Virtual Power Purchase Agreement (vPPA)

    • Financial contract to purchase RECs and guarantee fixed price payment to renewables developer to directly contribute to the development of a renewable energy project

    • Electricity from project is supplied to the local market and buyer continues to buy power from local utility (1)

  • On-site installation

    • Directly investing in and installing on-site renewable energy generation (e.g., solar panels), with generated energy primarily consumed at that site

    • Can be installed by working with a third-party developer (via a PPA, or using own capital), or installed using in-house resources

For a representative comparison of the five main procurement approaches, please see Figure 23 below.

Figure 23: Description, effect on grid, scalability, and considerations for renewable energy procurement methods. Source: BCG analysis.

Feasibility and cost-effectiveness of options for particular sites within your company will depend on multiple factors, such as: local utility tariffs, local utility rules and constraints, availability of certain options (e.g., green tariffs), site conditions, grid emissions factors, etc. Local conditions will be very influential in determining the viability of onsite installations, PPA feasibility and green tariffs.

Unbundled RECs and Virtual PPAs can be implemented at a corporate (as opposed to a facility) level.

Ultimately, the most favorable mix of renewable electricity procurement approaches and technologies would depend on a variety of factors, including but not limited to:

  • Electricity costs and potential savings

  • Investment required

  • Ease of implementation

  • Emissions reduction benefits

  • Local resiliency benefits

  • Alignment with strategic goals (e.g., “24/7 matching” of renewable power and facility demand)