Two Dutch co-operatives and a consortium of four major international companies are powering a quiet revolution to the circular economy through a joint power purchase agreement. Are they the first of many? An interesting article from the Guardian – SEYN
Two years from now, a brand new phalanx of wind turbines towering over the flat fields of southern Holland’s coastline will start to turn – and as they do, they could be powering a quiet revolution in the circular economy.
The turbines at the Windpark Krammer development are the fruit of an unlikely collaboration between 4,000 members of two local Dutch co-operatives – many of them vegetable and flower growers – and a consortium of four major international companies: Akzo Nobel, Royal DSM, Google and Royal Philips. Together, they have agreed to buy 350,000,000 kWh of electricity (equivalent to the needs of 100,000 households) each year over the next 15 years. In doing so, they’re both ensuring that the wind park is viable, and helping guarantee their local electricity supply – while at the same time hitting their sustainability targets.
It’s the first such collaborative Power Purchase Agreement (PPA) – but it’s coming on the back of a growing number of direct deals between individual companies and renewable energy providers – typically wind and solar parks. They’re effectively cutting out the middleman: power utilities. According to a new report from the World Business Council for Sustainable Development (WBCSD), there are now over 50 such schemes underway, mainly in the US, Mexico and Europe – areas whose regulatory regime favours direct purchase.
Such schemes could also offer a new twist on the circular economy which is typically seen in the context of “closing the loop” for materials. But there’s no reason why it can’t apply to energy more widely. After all, you can’t get more circular than energy which is endlessly refreshed from the sun and wind. Buying direct could help companies “tighten the loop” of their circularity, as it were.
But if that sounds a touch too academic a motivation, then there’s always the money. A direct purchase deal means you can be absolutely certain how much your electricity is going to cost for years into the future. Of course, other energy supply deals offer long-term arrangements but lack the cast-iron simplicity and reliability of a PPA. This “price visibility”, as Heinrich puts it, is hugely attractive to companies struggling to budget for uncertainty. “It might cost a little more, at least initially, but it enables you to plan with certainty.” And negating the risk of a nasty price shock is one of the simplest ways to help chief finance officers sleep at night.
For the Windpark Krammer consortium, this is definitely part of the appeal. According to Simon Braaksma, senior director at Royal Philips, the deal “is as cheap – or even a little cheaper – than conventional alternatives.” This gives it a robust business case. It’s Philips’ second direct PPA, but as the company chases down its target to be 100% renewable by 2020, says Braaksma, there are sure to be more. “It’s all about resilience”, he says.
Sim van der Linde, purchasing director for renewable electricity at DSM, agrees: “Buying direct means we cut out the middleman, in the form of the utility. So we’re saving money there, and that means this purchase is absolutely competitive.”
It has a strategic appeal too, says Marcel Galjee, director (energy) at Akzo Nobel. “Energy is a key spending area for us”, he says. “That means it’s a key risk area, too. Decarbonising our energy supply in this way helps insulate us against risks such as that of a really high carbon price, for example. So it’s part of our strategy to make us less vulnerable, and more robust for the future.”
The doyen of direct purchase is Google. It’s signed contracts to buy nearly 2.5GW of green power which, says the company’s sustainability lead Kate Brandt, means it’s “the largest, non-utility, corporate renewable energy purchaser in the world.” As well as helping meet its own RE100 target, she says, “it also makes business sense, providing [us with] a clear economic return.”
Tech giants such as Google were early movers in the field but the WBCSD reckons there are huge opportunities to open it up beyond such usual suspects – and into new geographies such as India and China. It’s started a forum bringing together companies, financiers, power providers and – crucially – policymakers and regulatory authorities, to explore how best to achieve this. Collaborative purchases will play a growing role, Heinrich believes. “By sharing the risk, they can make developments happen that would never have got off the ground otherwise.”
“Because we’ve committed to a long-term purchase”, adds DSM’s van der Linde, “we’re giving the developers the certainty which their bank lenders are demanding. This means companies like ours are actually driving the growth of the renewables market. So it’s a win-win-win-win-win! A win for us, for the wind farm developers, for financial institutions backing renewables, for the government which is keen to hit its renewable energy targets, and for the climate.”
All of which means that strange new partnership between a bunch of Dutch farmers and a consortium of multinationals could just be the first of many.