The electrification trilemma: Three decisions at the heart of every corporate power strategy

As the energy transition accelerates, decarbonisation targets and the financial commitments needed to achieve them are fast becoming real business priorities. For companies with complex energy needs, pathways to decarbonisation can be especially difficult to navigate. In this article series, we explore how organisations can transform their decarbonisation goals into real-world impact – starting with the challenge of delivering complex electrification.

An electrifying problem

It’s become almost cliché to say that “the future is electric”. Still, it’s undeniable that electrification is one of the most important strategies for reducing CO2 emissions. It hinges around replacing technologies or processes that use fossil fuels with electrically powered equivalents and increasing the use of renewable electricity generation.

However, in the drive to electrify, organisations – especially those with complex electrification needs – face a unique trilemma in how they access, decarbonise, and pay for power that require discussing at the Executive level.

Dilemma 1: Electricity access

Global demand for electricity is currently rising at its fastest rate in 20 years, and is expected to accelerate further in the coming years.

What’s driving up electricity demand?

With electricity demand set to soar in the coming years, organisations must start thinking now about how they are going to secure the supply needed to support tomorrow’s operations. Without reliable access to electricity, organisations face a reality of being unable to charge fleets, meet heat pump installation targets, or scale operations – threatening their growth and survival.

To solve this electricity access dilemma, consider the following steps:

• Know what you need. Quantifying your baseload and peak demand is critical to understanding the impact of your load on the network.
• Timing is everything. When your peak demand occurs and the timing of this in relation to peak network load is the most critical factor in securing network connections. Batteries and demand-shifting are great ways to reduce your peak load and its timing.
• Location, location, location. As grid constraints are often highly localised, shifting your location or running a private wire to areas where there is greater grid capacity can be more cost-effective than network upgrades in highly constrained locations.
• Explore alternatives. When you have exhausted cost-effective options to reduce or shift electricity demand, it’s worth considering other technologies like biofuels and hydrogen.

Dilemma 2: Electricity decarbonisation

For years, companies have been able to claim ‘100% renewable’ operations, largely through Energy Attributes Certificate (EAC) schemes. But now that paradigm is shifting, with the credibility of existing certification schemes in question and companies facing greater scrutiny over potential greenwashing.

Today’s emissions reporting standards allow companies to buy clean power and credit it against their consumption on an annual basis. However, this can create a mismatch between when electricity is produced and when it is used, making it difficult to determine to what extent a company’s demand is actually met with renewable power and the resulting emissions impact.

In recognition of this disconnect, major changes are being considered to the Greenhouse Gas (GHG) Protocol’s Scope 2 Guidance. It is likely that they will require a closer matching of the hour in which renewables are generated and the hour of corporate demand. This is a fundamental shift from the annual matching we have today, which moves the goal posts for what counts as ‘100% renewable’ operations.

If the proposed changes go ahead, companies face a dilemma. Either they take on higher costs and risk to continue to report that their operations are indeed ‘100% renewable’. Or they face an increase in reported Scope 2 emissions, which could be damaging from a regulatory and reputational standpoint.

To ensure that renewable energy claims are defensible while keeping decarbonisation efforts on track, organisations have several levers to pull on:

• Get granular about demand. To shape a credible decarbonisation strategy, you need to be clear about your demand, down to the hour. This requires granular time data that can be readily extracted for analysis.
• Generate on-site. For those who can, generating electricity on site is attractive from both an emissions and financial standpoint. It reduces both locational and market-based emissions and avoids non-commodity costs, providing extra savings compared to grid-scale projects.
• Mix technologies. A portfolio of power purchase agreements (PPAs) using a mix of wind and solar provides access to credible renewable energy with greater price stability, and the technology mix helps to mitigate the intermittency risk of renewable generation. Baringa’s Energy Source software allows companies to run different scenarios to assess and optimise their PPA portfolio to reduce risk.
• Get flexible. Shifting demand to hours of renewable generation and reducing consumption when renewable generation is low can have a material impact on costs and can be one of the most effective ways to reduce actual emissions. 

Dilemma 3: Electricity cost and risk

The move towards renewables exposes organisations to a new set of costs and risks, largely due to the increased intermittency of wind and solar.

What’s driving higher costs and risks?

In the new energy paradigm, organisations must strike a balance between cutting carbon emissions and securing sufficient access to renewable sources of electricity, while managing the associated costs and risks. To achieve this, organisations should:

• Know your cost and risk appetite. The costs and risks that a business can tolerate will depend on its margins, electricity spend and whether its products are pegged to the price of power. The energy transition also brings a new set of risks for companies to manage, including whether new assets will be built on time and the ESG credibility of providers.
• Make the right match. It’s critical to ensure you are comparing like-for-like when valuing renewables contracts. Accounting for shape, imbalance, and volume risk in any decision-making is important to consider the full stack of costs.
• Stay on top of subsidies. Government subsidy schemes, such as Contracts for Difference (CFDs) in the UK, often act as a floor price for renewables and PPA contracts. Understanding how these prices are evolving can help to inform what companies might expect to pay for a PPA.
• Review regularly. Energy markets and demand change constantly. Make it an annual activity to re-assess your risk exposure and measure your progress, so that changing circumstances can be accounted for, and decisions can be updated.

Companies can’t afford to ignore this triple threat

The energy transition represents a fundamental shift in the way organisations access, decarbonise, and pay for electricity. Whilst we acknowledge the recent change in rhetoric coming out of markets such as the US to increase the focus on fossil fuels, the transition to renewable power marches on with renewable generation set to exceed coal-fired power in 2025. Navigating the energy transition successfully will require complex trade-offs to balance decarbonisation with affordability and competitiveness. Without a clear pathway to electrification, organisations will find themselves burdened with higher costs, risks, and reputational damage while better-prepared competitors surge ahead.

What’s the risk of failing to act now?

Tackle the trilemma with a proven partner

Baringa is ready to help you take on the triple challenge of securing access to genuine green electricity, and managing the associated costs and risks. Drawing on deep experience at the heart of the energy transition, our team will help you design and deliver credible, commercially successful pathways to electrification. Reach out to Hannah Simmonds or Ryan Thomson today to learn more.