solar energy

Viewpoint - 08/02/2024

Renewable energy contracts: How to make the right choice

Stephen Clayton in our ESG & Sustainability team examines the renewable energy products on offer, and the decisions that LSH has taken regarding its own managed electricity supplies.

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As responsible property managers, our duty is to ensure properties run as sustainably as possible. Securing renewable backed energy contracts is an easy and straightforward way to achieve this. However, with the renewable market marred with a lack of transparency, double counting, and greenwashing, this is not always straightforward.

Landlords and managing agents are pivotal to their and their tenants’ corporate net zero carbon strategies and by choosing the right renewable energy contract, can actively contribute to efforts to decarbonise the grid.

All power generated by different sources (wind, solar, gas, coal etc) is fed into the same central transmission system, which is then distributed to homes and businesses across the UK. Renewable Energy Guarantee of Origin (REGO) certificates allow energy suppliers to account for and track the amount of renewable energy within their demand.

However, not all renewable contracts are equal, and it can be unclear what exactly is on offer, as demonstrated by the renewable products outlined below.

Unbundled ‘Green’ Energy 

REGO certificates can be bought by suppliers who have not actually bought the power they relate to, known as ‘un-bundled trade’. This happens when an energy supplier purchases its energy from the wholesale market, via a mix of “dirty” and “clean” energy, and then buys enough REGO certificates to label a tariff as ‘Green’.

Essentially, any supplier without renewables can buy REGOs, and allocate them to their grid energy. This could be considered greenwashing and does not incentivise the supplier to invest in renewable generation of their own.

Bundled ‘Renewable’ Energy 

The REGO certificate could be purchased along with the power, known as a ‘bundled trade’. An energy supplier buys all its energy from the renewable generators together with its REGO certificates to label a tariff as 100% renewable. This provides transparency to consumers about the proportion of electricity that suppliers source from renewable generation.

Power Purchase Agreements (PPA) 

This is considered the highest quality renewable energy where suppliers invest via a PPA direct with a renewable developer.

PPAs are a contractual agreement between energy buyers and sellers; to buy and sell an amount of energy, which is or will be generated by a renewable asset.

PPAs are usually signed for a long-term period, between 10 and 20 years, with terms that aim to control risks and facilitate the project realisation, while guaranteeing a source of renewable energy to the buyer and the seller securing a buyer for the long term. This provides ‘additionality’ to the grid, which is a key word for many net zero definitions in the built environment, where these contracts are actively contributing to grid decarbonisation through their existence.

A PPA is typically the agreement to sell X amount of MWh volume from a renewable project to a buyer at a fixed price (or fixed conditions of indexation). This can be via a ‘Physical’, where renewable generation is allocated directly into the buyer’s energy mix at a fixed price, or ‘Financial’, where generation is forecast and locked to provide price and volume certainty to both buyer and seller.

Usually, this agreement can be between energy suppliers and renewable developers, but corporates are now contracting directly with developers to sleeve into their existing supplier contracts. 

This is known as Corporate Power Purchase Agreements (CPPA).

LSH/Ecotricity Framework 

Alongside energy consultants ZTP, we have successfully contracted 99% of our managed electricity supplies (excluding Northern Ireland) to Ecotricity via a competitive tender in a challenging energy market.

Ecotricity provide high quality renewable energy, as defined by RE100, as standard in their contracts via Power Purchase Agreements (PPA), directly with their own renewable generators and developers. This will benefit landlords and occupiers by dramatically reducing their scope 2 emissions and provide additionality to the grid. We see this partnership with Ecotricity as a positive way to help push scope 2 decarbonisation with our clients and tenants.

Geopolitical instability around the world and very tight supply and demand fundamentals mean that energy markets can be easily spooked, adding to high volatility in the wholesale markets. Therefore, our Energy Governance Committee came to a consensus that the downside risks far outweigh the upside opportunities. With the UK supplier market not behaving as it should, we have opted for a risk adverse approach by locking into a 2-year electricity fixed contract with Ecotricity. Our objective is to provide energy price stability to end users following on from a very difficult and turbulent period, while also providing high quality renewable energy as standard.

Greater Industry Transparency 

As a business, we welcome greater transparency in the REGO market by abolishing unbundled trades and providing time and date stamped bundled REGOs certificates to give end users exact data around when their energy was generated and the certificate redeemed. 

Our Energy Consultants ZTP have been at the forefront of lobbying Ofgem and the industry to provide greater transparency to end users in the REGOs market and prevent greenwashing with unscrupulous suppliers.

We also hope the upcoming UK Net Zero Building Standard definition also considers ‘additionality’ into the renewable energy contracts to qualify as a net zero building and help drive energy grid decarbonisation in the built environment.


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