Advance renewable grid tranformation through PPA cohorts

This workstream is helping PepsiCo to progress further towards its goals to achieve net zero emissions by 2050 and to reduce its scope 3 Energy and Industry (E&I) emissions by 42% by 2030 (vs 2022 baseline). Renewable electricity is one of the most cost-effective levers to reduce GHG emissions, and through forming power purchase agreement (PPA) cohorts with suppliers, contract manufacturers and franchise bottlers, PepsiCo is helping to make power purchase agreements more accessible and actionable for its value chain. This case study summarizes PepsiCo’s global ambition to facilitate power purchase agreement cohorts within its value chain and highlights the successful cohort formed in North America as an example of this initiative

In 2022, PepsiCo launched the pep+ REnew program, which provides educational resources and renewable electricity (RE) transactional support to PepsiCo’s value chain.

In addition to providing these resources, the company began implementing a targeted strategy to increase collaboration on RE across its value chain and reduce barriers to entry to long-term, high additionality RE coverage through power purchase agreement (PPA) cohorts. PPA cohorts are an avenue for group purchasing of renewable electricity where multiple companies move through the power purchase agreement process together.

Climate Impact

Sustainability

Scope of Impact: PepsiCo’s Scope 2 emissions as well as PepsiCo’s Scope 3 Energy & Industry (E&I) emissions

PPA cohorts can positively impact the greater grid decarbonization movement through involving more buyers and building a stronger demand signal for high additionality renewable electricity. Cohorts do so by creating:

A more inclusive system– through aggregating electrical load, smaller electricity users gain the opportunity to enter into a purchase power agreement when they otherwise may not meet required load minimums.

The potential for greater economies of scale – aggregating load can often lead to more competitive bids from developers.

A collaborative environment to learn and transact – cohorts provide a collaborative space for first-time and experienced renewable electricity buyers to connect, learn and share experiences.

Business impact

Benefits

PepsiCo aims to achieve 100% renewable electricity coverage in its company-owned operations by 2030 and in 2024, 89% of the company’s direct global electricity needs were met with renewable electricity including through the use of PPAs and unbundled energy attribute certificates (EACs). As part of its Global Renewable Electricity Strategy, PepsiCo is working to reduce reliance on unbundled EACs through transitioning some of that coverage, and adding new coverage, to more additional procurement methods like onsite generation and power purchase agreements (PPAs).

Through standing up PPA cohorts with its value chain, PepsiCo is able to progress further towards its company-owned renewable electricity goal, enhance collaboration with its value chain to reduce its scope 3 E&I emissions, and also progress towards diversifying its global RE portfolio to achieve longer term and higher impact RE coverage for company-owned operations.

Costs

The main costs of this initiative come from sponsoring the pep+ REnew Program as well as the potential cost of entering into power purchase agreements.

Typical business profile

Though this is a global initiative for PepsiCo, its application is currently limited to markets where power purchase agreements are feasible and where PepsiCo has electrical load that overlaps with that of its value chain. To date, PepsiCo has signed one aggregated power purchase agreement through a value chain cohort in North America and is making strong progress in replicating this initiative in several other markets globally.

This initiative is most relevant for large, multinational companies with significant electricity consumption and distributed value chains. It applies best in markets where long-term power purchase agreements are feasible and where companies share overlapping electrical loads with suppliers or partners.

Approach

PepsiCo’s approach to standing up power purchase agreement cohorts with third parties within its value chain is split into three phases.

1. Selecting focus markets

2. Identifying potential cohort participants in those markets

3. Engaging with those identified potential participants to form a cohort

To select focus markets (phase 1), PepsiCo:

• Maps Scope 3 Energy and Industry (E&I) contributing emissions to understand where value chain concentration exists; and

• Utilizes renewable electricity market deep dives to understand which of those concentrated markets are feasible to form power purchase agreement (PPA) cohorts in.

To identify which third parties within the company’s value chain may be interested in joining a cohort (phase 2), PepsiCo utilizes several metrics provided in its annual pep+ survey including, but not limited to, energy profile data, whether the company has a renewable energy goal, and if they have engaged with the pep+ REnew program.

Once an initial list of potential cohort members is compiled, PepsiCo’s Global Sustainability Office works with procurement and the key account managers to develop a plan for engagement (phase 3). In this phase, PepsiCo conducts value chain outreach and third-party led market education sessions with potential cohort members to discuss the opportunity and ensure all parties have strong foundational knowledge of the process and relevant market.

In the case of the aggregated power purchase agreement (PPA) contracted in North America, it was important to expand that education early on to the key stakeholders—not only those directly involved in the day-to-day dealings of the cohort but to all stakeholders that would be involved in the decision-making process. Engaging and informing all stakeholders from the beginning allows the cohort to continue moving forward at a strong cadence and make unified, informed decisions that align with each cohort members’ needs.

Stakeholders involved

PPA cohorts are a truly cross-functional initiative, and for them to be successful, they require frequent communication and alignment across all stakeholders from the beginning. Some of the key stakeholders involved in this initiative are:

• PepsiCo’s Global Sustainability Office and regional sustainability teams

• Regional or market specific Energy Procurement teams

• Key Account Mangers (those managing the supplier, franchise bottler or contract manufacturer relationships)

• Finance

• Legal

Key parameters to consider

There are quite a few things that need to be considered when standing up a PPA cohort, some of which include:

Timeline – PPA cohorts usually take longer to execute than single off-taker deals. This can be attributed to the increased number of stakeholders who all need to achieve alignment to move forward in the process. In the case of the North America PPA cohort, it took approximately 18 months to execute.

One way in which PepsiCo has begun to account for this is through building a cohort pipeline. Through understanding which markets the business is prioritizing for PPAs in the coming years, PepsiCo’s Global Sustainability Office can begin the cohort process earlier.

Not all markets are the same. Nuances exist across PPA regulations in different markets – PepsiCo has learned that to replicate this initiative in multiple markets, it needs to tailor the process and ways of working to each individual market.

Business Case and Alignment – PPA cohorts require full cross-functional alignment. To achieve this, it is important to determine the business case and gain the necessary business alignment early on.