How Can the Procurement of Renewable Electricity Assist the NHS in Reaching Net-Zero?
With such a complex and diverse asset range, becoming the world’s first Net-Zero national health service is not an easy task! We have partnered up with Clarion Solicitors energy, renewables and low carbon expert Christian Hellmund to discuss some potential strategies.
“Having the right energy procurement strategy will play a vital part in the decarbonisation of the NHS estate”
Christian has provided us with an insight into how Clarion Solicitors can help the NHS to decarbonise existing and future buildings, as well as other assets through the use of renewable electricity procurement.
Onsite self-generation using an own renewable generating asset or purchasing electricity together with Renewable Energy Guarantees of Origin (REGOs) (or a combination of them) can help the NHS’ road to Net-Zero. A REGO is a certificate that shows customers the renewable content of the electricity that has been supplied to them. One REGO certificate represents 1 MWh of renewable electricity generated. This REGO must be cancelled at the end of a compliance period. The customer can either hold the REGOs in their account on the Renewables and CHP register with an energy regulator Ofgem or get its supplier to hold them on the customer’s behalf. The main routes to renewable electricity procurement are listed below:
Onsite renewable generation
Renewable electricity procurement can be achieved by onsite self-generating renewable electricity from the customer’s renewable assets such as solar PV, wind geothermal, hydro, wave & tidal and bioenergy. This can also be achieved through a direct/physical power purchase agreement (PPA) including through private wires.
In these circumstances, a renewable generating asset is located close to the asset consuming the generated electricity. Here the customer enters into such direct PPA with a renewable generator to purchase electricity and associated benefits (including REGOs) directly from the renewable generator.
Off-site renewable generation
Electricity procurement from off-site generation means that the customer can have a direct electricity purchasing relationship with a renewable generator without the need for a direct physical connection to the renewables generating plant.
There are mainly two corporate PPA structures used in the market – ‘back-to-back’ or ‘sleeved’ PPAs and ‘virtual’ or ‘synthetic’ PPAs.
A back-to-back PPA is a structure where the customer enters into a PPA with the generator and purchases the electricity and associated benefits (including REGOs) directly from the generator. In addition, the customer enters into a back-to-back PPA with its licensed supplier who purchases the electricity from the customer and then sleeves this into the customer’s electricity supply contract, usually at an additional cost to the customer, the ‘sleeving fee’.
The virtual/synthetic PPA is effectively a contract for difference. This structure is more flexible than a back-to-back PPA and does not come at the cost of a ‘sleeving fee’. The customer does not receive the electricity from the generator but usually agrees to a fixed price for electricity and associated benefits (including REGOs) that the generator generates and exports.
Renewable electricity generated by the generator is sold to any offtaker in the market at a wholesale price, then the difference between the agreed and wholesale prices is settled by the parties. Where the wholesale price is higher than the fixed price of the PPA, the generator pays the difference to the customer and the opposite happens when the wholesale electricity price is lower than the PPA price.
An advantage of a virtual or synthetic PPA structure is that the PPA may act as a financial hedge against volatile electricity prices.
Unbundling
Customers who are supplied with electricity should be aware that REGOs can be ‘unbundled’ from generated electricity. This has led to concerns in the market generally known as ‘greenwashing’.
As unbundling is currently possible (note REGOs currently trade at a relatively low cost), a ‘green’ electricity tariff could consist of sourced electricity sourced from fossil fuels and bought by a licensed supplier on the wholesale markets and sold as 100% renewable/green electricity if such electricity is 100% matched by REGOs.
Our energy experts at Clarion can assist you with the typical PPA procurement process and guide you through the considerations in the initial planning, tender, evaluation and appointment of preferred bidder stage, PPA negotiation and execution. This also includes the considerations where a renewable generating asset is being constructed by a developer to later operate for your benefit.
If you would like more information, please either contact us by filling in an enquiry form through our website or contact Christian Hellmund directly at christian.hellmund@clarionsolicitors.com