How pushing for net zero can help a business' bottom line

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This article was originally published on 19 September 2023.

There’s a clear need for businesses operating across all sectors to push towards net zero by lowering their carbon footprints. For most organisations, a major part of this is likely to be decarbonising their energy supply. While the moral and reputational reasons for doing so are obvious, there can be financial benefits to sustainability that are less well understood. This article takes a whistle-stop tour through various ways that a business can decarbonise. While many of these measures aren’t cost free, they’ll often be financially beneficial in the long run, whether through lowering costs or through creating additional revenue streams.

Onsite generation

Onsite generation essentially means the installation of renewable generation on a business’ premises, usually solar or wind power. The simplest way of doing this is for the business to pay for the installation cost and then own the renewable asset itself. The benefit to doing things this way is that the operation costs are usually relatively low and the business then receives free electricity. Where more power is produced than the business needs, it’s even possible to sell any excess electricity back to the electricity grid to make additional income.

One downside is that the up-front cost can be quite high. A way around this is to have a renewables company (often called a generator) install and own the renewable asset. The generator then recovers the cost by selling power to the business via a power purchase agreement (PPA). The cost of this PPA electricity will often (but not always) be lower than the cost of electricity bought straight from the grid. Building out onsite generation in either of these ways can also enhance energy security by giving a business its own dedicated power supply.

Battery storage

Another issue where a business is relying on renewable electricity is intermittency. This is because, when the sun isn’t shining or the wind isn’t blowing, there won’t be any electricity. One way this can be addressed is by also installing a battery that can store up the renewable electricity when it isn’t needed and then release it when it is. This is the simplest use of battery storage and is sometimes called ‘load shifting’. On a more complex level, large size batteries can also be used to generate revenue by selling power back to the grid at times of peak demand or by participating in ‘grid services’ such as dynamic containment that help the electricity grid to operate more efficiently. It’s unlikely a business would be able to do this by itself and so would usually appoint a third party (called an ‘optimiser’) to get the most money out of the battery.

PPAs

A PPA is a specific kind of supply agreement that facilitates the supply of electricity from a generator or supplier to a customer. We’ve already discussed the simplest form of PPA, usually known as a ‘private wire PPA’, which provides for electricity generated by a renewable asset to be sold to a customer via a physical cable. However, for larger organisations with significant electricity requirements, more complex ‘corporate PPAs’ can also be used. This can involve a generator selling electricity from a number of renewable assets to an intermediary that then passes that electricity via the grid to on-sell it to the customer. This achieves a similar result to a private wire PPA but can draw on much greater generating capacity and doesn’t require a physical wire attaching the renewable asset to the customer’s premises. A significant advantage of entering into a PPA, whether corporate or private wire, is that it allows the customer to ‘hedge’ their electricity costs by fixing an agreed price for a number of years. This protects against fluctuations in electricity costs that affect electricity bought straight from a licensed supplier.

Why is this relevant to commercial law?

A large part of the work of a lawyer in the clean energy sector will be drafting and negotiating the agreements to facilitate the supply of clean energy. This can include PPAs, engineering, procurement and construction contracts for the construction of renewable assets, optimiser agreements to help clients get the most out of their battery storage and operation and maintenance agreements to keep renewable assets running smoothly and generating clean electricity. While most clean energy lawyers will be passionate about the importance of sustainability and decarbonisation, it’s vital to understand the financial impact on a business too. This is because, while most businesses will care deeply about becoming more sustainable, the decision will often ultimately come back to the bottom line. Understanding how to negotiate a commercial deal that’s financially as well as environmentally beneficial gives the best chance of contributing to a net-zero future.

Meryon Roderick is an associate in the projects team at Burges Salmon LLP.